Even for experts, financial markets are hard to understand. In this article, I want to ask what bearing this observation has on the financial crisis that swept through the world economies from late 2007 through to 2009. Should we attempt to control or to reduce complexity, or should we accept it as an inevitable feature of a complex, globalised world?
[This article has been reproduced with permission from Said Business School, University of Oxford. The article originally appeared in the School e-magazine, THEWORLD@OxfordSaid. http://www.sbs.ox.ac.uk]
Securitisation is akin to insurance - except that it is much more complex. Putting a value on the underlying asset classes is difficult. But then, as businesses become complex, and mortgages and similar assets become unpredictable, securitisation is becoming essential.
on Jun 16, 2011I agree this is complex, but good governance still is required, so that there is some sense to the madness, in order to making the scale of chaos manageable. In this financial crisis,none of the key players( bankers, rating agencies, and financial governing authorities, and governments) understood the risks involved which led to reckless behavior and the regulations and ratings(controls) weren't geared up. The beauty is none of them had anything at stake directly so the gambling table had no limits. Even today, the key orchestrators (key players) are only dazed, but not really hurt by their collective folly. The problem is complex, but the question to ask is simple - which gambler will stop gambling if there's nothing too lose?
on Jan 16, 2010