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No, it wasn't Greenspan. Or the computers. Or the carried away carry trades.

Nope, it was none of the things.

The Wall Street Journal has determined that Tuesday's crack-up was all your fault. By you, of course, I mean the investing public. Yep, it turns out that you (they) are insuffiently virtuous (who knew?):

This week's plunge in stocks and the prices of risky debt raises the possibility that investors, who had been displaying an unusual appetite for risk, are becoming risk-averse. Such a development could have big consequences for the U.S. and world economies.

In recent years, investors have poured money into risky investments from subprime mortgages and emerging-market debt to Chinese stocks. In the process, they have accepted ever-narrower returns, or "risk premiums." That has helped distressed companies avoid bankruptcy, financed a record leveraged-buyout spree, fueled surging profits on Wall Street, enabled poor countries to finance domestic spending and even made insurance easier for consumers to obtain.

Self-interest may somehow be playing a role here.

Posted by edelfenbein at March 1, 2007 7:34 AM