May 2017
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Of Course You Can Trust Me

Probability vs. Vulnerability or “What if I trust you, but shouldn’t have?

Danish Amagerbanken went bust on Sunday, which is a drag. Their shareholders feel betrayed, as do their customers, and given that the regulators said it was stable, so should the rest of us. After all, if you can’t trust a Scandinavian bank regulator, who can you trust?

Personally, I have two reasons to be upset. One is that Amagerbanken has a large sign on the roof of my apartment building that helps pay our rent. The second is that I was silly enough to believe the regulators.

Your intuition needs analysis, not ignoring
Looking back, there were two things that should have given me pause. One is that everyone knew that Amagerbanken made a lot of risky property loans in a market that has yet to recover.

The second is that the clock on the sign on my roof has been broken on and off ever since 2008. If you don’t care that tens of thousands of people pass a non-functioning sign advertising your bank every day, it’s probably because you’ve got bigger things to worry about.

Probability vs. Vulnerability
The focus of almost every discussion of Amagerbanken was the probability of their survival – never the consequences of a possible bust. The story was the rescue packages, the executives fired, and the man in charge while the bad loans were made, who died of a heart attack. The potential fall out didn’t register.

Now thousands of firms are stuck with cash they cannot access and face bills they cannot pay. The same goes for local authorities and private account holders. The vast sums invested to save the bank are gone. The damage has only started.
 
Regulators and personal responsibility
The people you owe money don’t care that the regulators should have done a better job. The investments you planned on making with the money now stuck in a busted bank’s bankruptcy resolution process are not going to wait for you. Nobody cares that it’s not your fault.

Given the potential damage, might it not be worth your while to review your vulnerability instead of relying on the word of someone else – even if they are a government “expert”?

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