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 Salon.com: This is almost like saying that capitalism, as it is currently constructed, doesn’t work.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s