It is considered less risky because some of its assets are less risky than others.

The appearance of an extra 500 billion in demand for risky assets will reduce the quantity of risky assets that other private investors will have to hold.

When assets are seen as less risky, their prices rise.

These assets become toxic not simply risky, but carrying a risk that cannot be quantified.

Some recent rises in the prices of equities, commodities, and other risky assets is clearly liquidity driven.

Expanding the demand and reducing the supply of these risky assets is a way of manipulating their price.

Whatever the cause, when the risk tolerance of the market crashes, so do prices of risky financial assets.

To buy or even to hold risky assets in such a situation is a recipe for financial disaster.

It naturally raises the question why aren t people moving their money from TIPS (and US Treasury bonds and other safe assets) to stocks (and other relatively risky assets)?

The consequences sharp capital flow reversals that are now hitting all risky emerging market assets have not been pretty.

The answer is simple Central banks have turned on their liquidity hoses again, providing a boost to risky assets.

They can guarantee the debt of private sector entities, thus transforming now risky leaden assets back into golden ones.

Whether the correction in risky assets is temporary or the start of a bear market will depend on several factors.

A policy that leaves owners of risky financial assets impoverished is a policy that shuts down dynamism in the real economy.

Eventually, central banks will need to exit quantitative easing and zero interest rates, putting downward pressure on risky assets, including commodities.

The second development was that the carry trade appeared to perform strongly when other risky assets also did well, and vice versa.

Their central banks can borrow and use the money to buy up some of the flood of risky assets in the market.

A quantitative easing policy in which a central bank buys risky assets can prevent price fluctuations and restore the value of financial wealth.

In fact, lowering the benchmark rates for risk free assets changes the distribution of the risk premia on risky assets, making it too low when asset bubbles are forming and too high when they burst.

So, while this latest bear market rally may continue for a bit longer, renewed downward pressure on stocks and other risky assets is inevitable.

Indeed, investment banks like Goldman Sachs and Barclays Capital are already inventing new types of securities to reduce the capital cost of holding risky assets.

So is buying or holding equity in firms that may be holding risky assets, regardless of how safe a firm s stock was previously thought to be.

General deflation eliminates the capital of yet more financial intermediaries, and makes risky an even larger share of assets that had previously been regarded as safe.

And, by involving the Treasury, the purchase of risky assets could be financed by issuing debt, rather than by printing more money, thereby attenuating inflationary fears.

The government (the visible hand) sets the benchmark price for risk free financial assets through monetary policy and control over fiscal deficits, while the market (the invisible hand) sets the risk premia of risky assets above the benchmark rate.

NEW YORK Until the recent bout of financial market turbulence, a variety of risky assets (including equities, government bonds, and commodities) had been rallying since last summer.

But at least four downside risks are likely to materialize this year, undermining global growth and eventually negatively affecting investor confidence and market valuations of risky assets.

Moreover, in a risk off environment, when investors are risk averse or when equities and other risky assets are subject to market and or credit uncertainty, it may be better to hold negative yielding bonds than riskier and more volatile assets.

That is an extraordinary gap in the returns that you can reasonably expect. It naturally raises the question why aren t people moving their money from TIPS (and US Treasury bonds and other safe assets) to stocks (and other relatively risky assets)?

Asset purchases by the US Treasury and other executive branch entities to reduce the quantity of risky assets that the battered and risk intolerant private sector was holding

Is QE merely the sequel to the Greenspan put ? It is certainly the case that today s super low interest rates encourage investors to pour funds into risky assets.

BRUSSELS A financial crisis erupts when a large volume of assets in the financial system suddenly appears to be risky and investors want to get rid of their holdings.

As output and consumption become more stable, investors do not demand as large a risk premium. The lower the price of risk, the higher the price of risky assets.

In 1992, Sweden s central bank, the Riksbank, allowed private bank equity holders to be wiped out, but it rescued depositors and creditors by buying up risky assets of failing institutions.

This response is understandably controversial, because it rewards those who bet on risky assets, many of whom accepted risk with open eyes and bear some responsibility for causing the crisis.

America s Risky Recovery

China s Risky Finances

Risky Growth Engines

Risky Risk Management

The Risky Rich

RIO DE JANEIRO Since late last year, a series of positive developments has boosted investor confidence and led to a sharp rally in risky assets, starting with global equities and commodities.

But if a government s debt emissions exceed its debt capacity, all of that government s debt will become risky. It will have relieved a shortage of longer term assets by creating a shortage of high quality assets, and so be in a worse position than it was before.

In 1992, Sweden s central bank, the Riksbank, allowed private bank equity holders to be wiped out, but it rescued depositors and creditors by buying up risky assets of failing institutions. Sweden recovered.

This is risky speculation.

Near zero policy rates encourage carry trades debt financed investment in higher yielding risky assets such as longer term government and private bonds, equities, commodities and currencies of countries with high interest rates.