Serial crisis: the price of boom-bust capitalism

By Brian Love - Analysis

PARIS (Reuters) - Apart from its sheer enormity, what is stunning about the $7 billion trading scandal unfolding at French bank Societe Generale is the impression that financial market excess knows no bounds, never has, and maybe never will.

Equally disconcerting is the fact that politicians declare each time trouble strikes that, this time something must and will be done to prevent it happening again.

Yet history repeats itself with such frightening regularity that Pierre Cailleteau at Moody's Investors Service, the credit rating agency, says governments have essentially done a deal with the devil.

Political leaders, he argues, quietly accept the notion that there is no gain without risk and occasional financial failure or crisis is the price to be paid for the risk-taking that creates wealth and economic growth the rest of the time.

"Accepting the existence of crisis is the Faustian pact that policymakers have made with the financial industry," Cailleteau, whose own company is among those accused of failing to flag the subprime crisis and the credit crunch that ensued.

The alternative, he argues, would have to be drastic, such as obliging banks to boost capital reserves tenfold, in which case the risk would no longer be one of failure but of stifling innovation and growth.

"You will no longer have financial crises, but you will not have an irrigation of the economy either," he says.

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