Why can Wall Street plan for emergencies?
When not following the election, I’ve found the latest financial crisis to be pretty interesting; how can so many smart people be collectively so stupid as to put the entire system at risk? I don’t pretend to fully understand this stuff, but here are a few thoughts, from a spectator. The financial system is built on promises of future payments. Some of these promises would survive any kind of catastrophe but most wouldn’t. Determining exactly which promises would survive what kind of disaster seems to be something that people in finance don’t do nearly enough of. This seems to be because there are huge incentives to maximize the promises you make. Outside of fraud, it’s not so crude as making promises you know you can’t keep; instead people make promises that can only be kept if things continue to go as they hope. In good times, confidence is all you need to look smart. Maximizing profits is usually about maximizing efficiency in the most likely scenario, and that usually means having
