Bending Over Backward to Manage Risk

Like a New York taxi on a rainy day, liquidity disappears when it is needed most. Anyone will make you a market when volatility is low and price movements are small, but so what? Great athletes and national leaders are defined by what they do in the clutch, and it's high time we start holding our financial institutions to the same standard.

Economists, with their usual deaf ear for the double entendre, refer to such a disappearance-when-needed as "backward bending." It shows up on both the supply and demand sides. Take the never-ending political lamentations over Americans' low rate of personal savings. If the government really wants us to save more, it should remove such impediments as double taxation of dividends, limitations on contributions to retirement accounts, limited deductibility of losses and multiple holding periods for capital gains taxes.

Pinpointing Motivation

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