Chaos theory - Why a little instability might be no bad thing for the future of the credit market

The recent history of the financial markets has been a story of cheap and widely available credit and advances in risk management techniques that have enabled investors to accurately price - in theory, at least - a book of risks. David Boorer of Northern Rock argues that these developments have tilted the age-old balance between fear and greed in favour of the latter and that a sharp dose of instability might just refocus the minds of risk managers

As the credit crisis rolls on it has become commonplace to seek comparisons with past crises. Will it be as bad as the early '90s? As bad as the '70s? Even worse? Interestingly, there seems to be more enthusiasm now to find a parallel in history on the way down than there was on the way up - when much effort was put into showing that 'this time it's different'.

One aspect that never seems to change is the question of how to reward risk managers. They are the people responsible for maintaining the