On Risk: Quote of the Day

by Alex Stenback on August 7, 2008

It’s become axiomatic that what led to the current financial & housing crisis was too much risk taken on by borrowers, banks, Wall Street investors, the real estate complex, et al. 

But could the problem have been too little risk? 

Steven Randy Waldman thinks so, and elegantly argues it was the relentless pursuit of risk-free return that lead to the current state of affairs. Emphasis ours:

We’ve trained a generation of professionals to forget that investing is precisely the art of taking economic risks, then delivering the goods or eating the losses…until owners of capital stop hiding behind cleverness and diversification and take responsibility for the resources they steward, finance will remain a shell game, a tournament in evading responsibility for poor outcomes.

Investors’ childlike demand for safety has made the financial world terribly risky

Brilliant thinking.  There is much more.

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