A number of thoughtful observers – like Citigroup’s Robert Rubin, Harvard’s Larry Summers, and The Financial Times’s Martin Wolf – have expressed puzzlement in recent months about financial markets’ perceptions of risk. While markets have judged today’s world – especially the dollar and securities linked to it – to have low risk when viewed in historical perspective, geopolitical risks in fact appear to be large. Wolf, for example, argues that financial markets have adopted a head-in-the-sand focus on the “long run of small gains,” ignoring the “occasional calamity” in advance, while losses will be attributed after the fact to “unforeseeable bad luck.”
A number of thoughtful observers – like Citigroup’s Robert Rubin, Harvard’s Larry Summers, and The Financial Times’s Martin Wolf – have expressed puzzlement in recent months about financial markets’ perceptions of risk. While markets have judged today’s world – especially the dollar and securities linked to it – to have low risk when viewed in historical perspective, geopolitical risks in fact appear to be large. Wolf, for example, argues that financial markets have adopted a head-in-the-sand focus on the “long run of small gains,” ignoring the “occasional calamity” in advance, while losses will be attributed after the fact to “unforeseeable bad luck.”