Simpler is better.
Much of today’s financial regulation assumes that risk can be accurately measured – that financial engineers, like civil engineers, can design safe products with sophisticated maths informed by historical estimates. But, as the crisis has shown, the laws of finance react to financial engineers’ creations, rendering risk calculations invalid. Regulators should rely on simpler methods.
Financial regulation built on sand: The myth of the riskometer | vox - Research-based policy analysis and commentary from leading economists
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