AgentMarkets & Economy

5 inescapable truths about financial disasters

Striking differences in man-made vs. natural catastrophes

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"Since financial disasters are entirely man-made, in principle they should be easier for governments to deal with than natural disasters, which cannot be controlled. Do you agree?" I don't. Financial disasters are less predictable than natural disasters. Those who expose the financial system to major risks can often shift their own risks to others; the depth and breadth of a financial disaster can be expanded by contagion; and it may be impossible to protect innocents from becoming victims of a financial disaster without helping the malefactors who caused the problem. Predictability: The ability to minimize the damage stemming from a disaster depends in good part on our ability to predict its occurrence early enough to react in ways that reduce the damage. While the predictability of many natural disasters (such as the recent earthquake in Haiti) is low, in some cases it is fairly high and rising as the science improves. For example, in the Mt. St. Helens erup...