MIT professor Andrew Lo, who was one of the first to see the financial crisis coming, assesses where we are and what we haven’t learned from the events of the past two years. Warning: Much talk about derivatives, credit default swaps, etcetera. But he makes his point: We know so little about what the hell happened. Excerpt:
What we need to do is think more carefully about where the risks reside in our economy and make sure the risks are being taken by the proper parties. And when we see parts of the economy that should not be taking such risks doing so, alarm bells should go off.
We do not have a systemic risk map to show where risk lies. We need a map like the National Weather Service for the financial system to warn those who are least likely to be able to survive such an event.
File under: Someone pull the College Tuition Bubble Alarm, please!