You've gone too far this time
But I'm dancing on the Valentine
I tell you somebody's fooling around
With my chances on the danger line
--Duran Duran
No market has likely been more laden with moral hazard than the present one. One indicator of this is constant chatter among market participants and pundits about fresh intervention by the Fed whenever prices meaningfully weaken.
"Prices are lower, give us a bail out."
This has been a reflexive response, similar to the Pavlovian bell, learned and reinforced from numerous cycles of price declines and subsequent interventions.
Consequently, market participants have ratcheted up their risk profiles under the assumption that policy-makers have their backs.
The higher the risk profile, the quicker the Pavlovian response to lower prices and losses.
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The Hanseatic League’s approach to business was defined by an outright hostility to debt, as the practice of borrowing money was proscribed in many mercantile quarters. By the 14th century, Hanseatic towns embarked upon a systematic campaign against financing commerce via credit, on the grounds that it caused instability of prices, which would upset business.
Modern scholars are puzzled by the fact that—with all its ‘oddities’—, the Hanseatic League thrived for almost four centuries.
~Phillippe Dollinger
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