Modern market crashes are instances when many smart people forgot key lessons

via @RadicalAdem:

• 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.

P2

 

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