Another paradox: risk aversion is easily solved
The FT's Market Insight column from a couple of days ago contained a reference which at first I skimmed over with barely a glance: "[bankers] feared that public sales would produce painfully low prices. That is a valid fear. After all, there are very few investors in the system right now with any appetite or capacity to take risk." A rather orthodox assertion and hardly worthy of note, thought I. And yet - a little thought shows that the riskiness of an investment is not only a characteristic of the underlying asset itself. Recall that, just a year or two ago, lots of not-very-risky assets with unexciting yields were being converted into riskier, high-return instruments by the simple trick of leverage. Borrow £200,000 at 4%, bung in £10,000 of equity, buy £210,000 of property or shares yielding 5%, and your £10,000 of cash magically earns a return of 25%, in return for a vast increase in risk. But the same trick is even easier to do in reverse. Let's say you are offe...