This is not a crisis that was caused because there was a drought, or because a meteor hit London and obliterated it, or because there was a war that destroyed productive capacity. This is because there was a misallocation of resources, because people had too much of that neurotransmitter in their brain, that then caused them to have too little of it, and now all they want are risk-free assets, and that causes the machinery of finance to really shudder to a halt.

Because financial decision making is about risk. What you do when you’re trading is apportioning risk. It’s about moving consumption from today to tomorrow, or vice versa, and about the risk associated with that, about transferring the risk associated with that. If nobody wants to take the risk, then nothing happens.

You know, it’s easy to understand how living standards would go down if somebody bombed all the factories in America. What’s kind of hard to get your head around is that those factories are still there! All that good stuff we were buying, there’s still the capacity to make it. But somehow it’s not getting done, because people’s attitudes about risk have changed. And as long as I’ve been in the financial markets, that’s still crazy and awesome and hard to get your head around.