• markets that generate attractive returns come w/ a higher risk of loss.
• liquidity dries up when needed most.
• markets are most vulnerable when overleveraged.
• Low Vol breeds High Vol.
• New financial contraptions – such as MBS’s, CDO’s, CDS’s, CLO’s, portfolio insurance, etc – might solve immediate problems and generate thick profits in the short-run..
But they create instability and larger problems with many unintended consequences in the long-run.