Worth the Risk

Informationen zum Autor Robert C. Merton is the John and Natty McArthur University Professor at the Harvard Business School. He is past President of the American Finance Association, and received the Alfred Nobel Memorial Prize in the Economic Sciences in 1997. Klappentext Assesses what went wrong with regard to the recent financial crisis, and how a similar disaster can be prevented. Written by a Nobel Prize winning economist. Leseprobe Chapter 1: Finance: Angel or Demon? As I write these words the world is recovering from what some people say is the worst financial crisis since the crash of 1929. By the end of 2008, institutions, households, and individuals had lost some $15 trillion in the stock and residential housing markets ? more than a year's GDP. Because these markets had been booming for so long prior to the crash, this was wealth that people had come to take for granted, and indeed had been borrowing against. Measures of household indebtedness are still at record levels and by some estimates it would take the average American family over a year to pay off its mortgages and debts without spending any money on any other item ? including food and clothes. This crash hit people hard in the pocket and has made current employment and future retirement prospects look decidedly insecure. It is human nature to look for clear, dramatic analyses that identify precisely what - and preferably who -caused such a disaster. Perhaps the gold standard for this was set by the famous physicist Richard Feynman. At a session of congressional hearings into the Challenger space shuttle disaster, Feynman put a glass of iced water on the table in front of him and dropped into it two small but critical parts of the shuttle's jet propulsion system called O rings, which served as seals to prevent fuel leakage. Later, after hearing repeated assertions by NASA managers that ?O rings were not affected by temperature changes, he pulled the rings out of the water and demonstrated that the exposure to the cold of the iced water had rendered the parts brittle and unable to expand when temperatures rose again. Since there had been an unusual cold snap the day of the launch, it was very likely that the ?O rings were responsible for the tragic explosion. Feynman's coup de theatre not only publicly revealed the physical cause of the disaster, it also highlighted serious flaws in the shuttle development program. In the course of the enquiry Feynman had come to question the scientific expertise of NASA management. Even more disturbing, he had discovered that managers had repeatedly ignored warnings voiced about the ?O rings by NASA engineers. His experiment provided a clear validation of these concerns. Zusammenfassung The 2008 financial crisis cost $15 trillion in the U.S. stock and residential housing markets. The crash hit institutions and citizens, threatening economic survival, employment, and retirement prospects. What went wrong? And how can we prevent a similar disaster? In Worth the Risk, Robert Merton--the Nobel Prize-winning economist whose work revolutionized financial markets--offers answers. Merton maintains that the magnitude of the crisis points to more fundamental forces at work than the greed, selfishness, or criminal behavior of some financial-system players and consumers. In clear, accessible language, he demystifies those forces. For example, he shows: -Why the professionals underestimated the riskiness of mortgage-backed securities and corporate loan portfolios. -How the financial innovations that brought home ownership to millions of Americans combined with other benign developments to inject huge, systemic risk into the U.S. economy. Merton then identifies specific reforms that could improve regulation and transparency in the financial-services industry and head off a similar crash in the fu...

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Assesses what went wrong with regard to the recent financial crisis, and how a similar disaster can be prevented. Written by a Nobel Prize winning economist.

Résumé
The 2008 financial crisis cost $15 trillion in the U.S. stock and residential housing markets. The crash hit institutions and citizens, threatening economic survival, employment, and retirement prospects.

What went wrong? And how can we prevent a similar disaster? In Worth the Risk, Robert Merton--the Nobel Prize-winning economist whose work revolutionized financial markets--offers answers.

Merton maintains that the magnitude of the crisis points to more fundamental forces at work than the greed, selfishness, or criminal behavior of some financial-system players and consumers. In clear, accessible language, he demystifies those forces. For example, he shows:

-Why the professionals underestimated the riskiness of mortgage-backed securities and corporate loan portfolios.

-How the financial innovations that brought home ownership to millions of Americans combined with other benign developments to inject huge, systemic risk into the U.S. economy.

Merton then identifies specific reforms that could improve regulation and transparency in the financial-services industry and head off a similar crash in the future. In particular, he offers strategies for minimizing risks in the innovation of financial instruments--which remains essential for our economy's health. And he suggests innovations that could open the door to security and growth for nations, corporations, and individuals.

Engaging and authoritative, Worth the Risk provides answers to the burning questions on everyone's mind?and paints an encouraging picture of a far more solid financial future.

Échantillon de lecture
Chapter 1: Finance: Angel or Demon?

As I write these words the world is recovering from what some people say is the worst financial crisis since the crash of 1929. By the end of 2008, institutions, households, and individuals had lost some $15 trillion in the stock and residential housing markets – more than a year’s GDP. Because these markets had been booming for so long prior to the crash, this was wealth that people had come to take for granted, and indeed had been borrowing against. Measures of household indebtedness are still at record levels and by some estimates it would take the average American family over a year to pay off its mortgages and debts without spending any money on any other item – including food and clothes. This crash hit people hard in the pocket and has made current employment and future retirement prospects look decidedly insecure.

It is human nature to look for clear, dramatic analyses that identify precisely what - and preferably who -caused such a disaster. Perhaps the gold standard for this was set by the famous physicist Richard Feynman. At a session of congressional hearings into the Challenger space shuttle disaster, Feynman put a glass of iced water on the table in front of him and dropped into it two small but critical parts of the shuttle’s jet propulsion system called ”O” rings, which served as seals to prevent fuel leakage. Later, after hearing repeated assertions by NASA managers that “O” rings were not affected by temperature changes, he pulled the rings out of the water and demonstrated that the exposure to the cold of the iced water had rendered the parts brittle and unable to expand when temperatures rose again. Since there had been an unusual cold snap the day of the launch, it was very likely that the “O” rings were responsible for the tragic explosion. Feynman’s coup de theatre not only publicly revealed the physical cause of the disaster, it also highlighted serious flaws in the shuttle development program. In the course of the enquiry Feynman had come to question the scientific expertise of NASA management. Even more disturbing, he had discovered that managers had repeatedly ignored warnings voiced about the “O” rings by NASA eng…