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Heed the alarum

• Robert Peston
• 12 Jul 07, 10:30 AM

This is a very dangerous moment.

The wobbles in credit markets - caused by the difficulties experienced by US borrowers of lower quality or sub-prime loans - could have one of two contradictory consequences.

The many billion dollars of losses suffered by those directly or indirectly exposed to sub-prime could prompt hedge funds, private equity houses and investment banks to take a deep breath and start showing a bit more caution in their deal doing.

That would be a healthy response. And it would mean that the positive conditions in global financial markets would be sustainable for longer.

‘Mr Markets’, Anshu Jain, seems to have learned the right lesson, given his warning in this morning's FT about the dangers of excessive borrowing or leverage.

But the more powerful and primal instinct among bankers and traders is greed.

The risk is they will double up their exposure to other sectors or financial products, for fear that the party is almost over - and if they don't scoop their bonuses or "carry" now, they never will.

I wonder if any of financial advisers had the courage to warn the company that it could be making a risky bet on aluminium at the top of the market with . "Don't do it" is not a phrase often uttered by investment bankers these days.

Markets are always in a state of war between common sense and desperation. And the good guys don't always win.

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