Preoccupied with the implications of the unfolding drama in Europe? Take a few minutes to view The Economist’s humorous reordering of the continent in the video clip shown in this post.
The latest issue of The Economist magazine includes a special report on financial risk. The videographic shown below illustrates the manner in which banks (and others) misread financial risks in the period leading up to the crisis. The assumption that financial assets would adhere to a normal distribution, or bell curve, proved to be false and the distribution had fatter tails than models had predicted. The videographic is a well illustrated basic account of this fundamental misreading of financial risk in recent years. Read this article for more details.
From the perspective of an outside observer, the debate over financial regulatory reform can seem like nothing more than the typical Beltway chatter full of shrill voices and political posturing. While the current debate is not free of the usual nonsense, it is important to note that the discussion has at least refocused on the “too big to fail” problem rather than fixating on consumer protection issues that consumed a great deal of time last year. There is nothing wrong with inquiries into whether credit card and overdraft fee regulations should be changed, but action in such areas will do nothing to prevent the next financial meltdown. Read this article for more information on a proposal to “bail in” banks in the event of a crisis.