enable markets to function more effectively. but even then there are questions of degree. and other forms of intervention may be more likely to reduce the wealth - creating capacity of the private sector by, for example, blunting incentives either to provide or to take up employment. that is not, of course, to say that they are in any sense necessarily wrong, merely to point out that here again choices to be made, the difficulty often being to know where to strike the balance between conflicting objectives. the question of relieving poverty needs to be addressed within this framework. our social conscience may say that we should lean more towards redistribution in favour of the poorer sectors of our community generally, or in favour of those who are particularly disadvantaged in one way or another and goodness knows there are endless causes that in themselves are worthy of our collective support. but it is important to recognise that in doing so, we could reduce the wealth and income generating capacity of the economy as a whole, and so reduce our ability to provide rising living standards to all sectors of society, including rising absolute living standards of the poorer sectors we were seeking to help. in other words, in trying to divide up the cake more equally we could, if we are not careful, end up reducing its overall size. the trick it seems to me is to find ways of having our cake and eating it which some forms of government intervention can, as i say, achieve. but that ’ s a great deal easier said than done. i only thank my lucky stars that i am not a politician! where then do the financial institutions of the city fit in to all of this? well, money changers have never been exactly popular. that is partly because of a perception that while the rest of the community earn their living making things, bankers simply make money - and what ’ s more they make money by using “ our ” money. but it is partly because of a perception that people who work in the financial services industry are pretty heartless people anyway. in fact financial intermediation is a critically important component of a market economy. behind the popular - or perhaps unpopular - image of erratic and speculative, short - term, financial market trading, which is in fact an important element in the process of price discovery - the essential role of financial intermediation is to gather together our collective financial resources - our savings if you like - and to direct their investment into those activities in which they can be most productivity employed. that underlying activity - based upon expert

but this does not alter the fact that, as i said earlier, the foundation has been precarious in many areas and the medium term will have a decisive significance for the outcome. uncertainties abound and many households in iceland thread a narrow path of debt and wages, where if they lose their footing, the fall could be heavy. thus caution, steadfastness and self - control are called for in all areas of the economy – in other words, the maxim that “ the doors of pleasure should not be thrown wide open ” still applies. as far as the central bank is concerned, ensuring low inflation is its most important function today and in the future. and that picture is growing brighter, although care still needs to be exercised.