Financial Markets Complexity Beyond Our Understanding

OK, here’s a frightening piece of news. Moody’s, one of the main credit rating services, has issued a report stating that the ability to accurately assess risk in modern financial markets has declined, “probably forever.”

The report makes two points:
1) The complexity and increasing interconnectedness of financial systems is making it difficult to adequately assess the risk in the system.

2) Incentives to maximize short-term profits in the financial industry are stronger than the incentives to maintain a stable and long-lasting financial system.

Or as John Leonard writes in This is almost like saying that capitalism, as it is currently constructed, doesn’t work.


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