Kevin Drum reflects on the irony of the housing bust:

The entire decade of the aughts was marked by an almost fanatical aversion to risk. All those synthetic CDOs and credit default swaps, all the super senior tranches that banks smugly kept on their books, the whole panoply of measurement tools like VaR and the Gaussian copula all of them were designed to convince investors that risk had been engineered out of the system. That's why they were so popular. Not because Bush-era investors were bold capitalists with confidence in the future, but just the opposite: it was because Bush-era investors were desperately looking for high-yield investments that were essentially fully hedged and risk free. It was a fool's paradise, all right, but it was a fool's paradise based thoroughly and explicitly on avoiding risk.

Now, of course, it's worse. Investors are still risk averse, but they're also operating in a recessionary environment in which good investment opportunities are genuinely hard to find and financial engineering no longer seems like a panacea. What's changed isn't the fundamental timidity of America's modern millionaire class, only the fact that it's now a lot more obvious.

That insight actually applies to other aspects of the Bush years. Many of us supported the Iraq War because after 9/11, we became so risk-averse that the idea of Saddam's alleged WMDs was enough reason to invade and occupy a country for a decade. We were so frightened by post future attacks, we instituted illegal torture as a mainstream US interrogation technique. We remain so terrified of loser teenage religious nuts we allow our privates to be vigorously groped at airports. We remain so terrified of adults experiencing pleasure in the privacy of their own homes that we have a "war" on marijuana that upends hundreds of thousands of lives. We are so alarmed that America may not for ever be the unquestioned greatest power on earth that we spend ourselves into bankruptcy trying to occupy or dominate the entire planet.

The only things we do not seem to be scared of are fiscal default and climate change. On those we are perfectly happy to let the winds blow where they will. Because it might just mean a little sacrifice from ... us - and not from somebody else.

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