By Antony Currie
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Larry Fink is sounding the alarm. The chairman and CEO of $4.4 trillion asset manager BlackRock is worried about leveraged ETFs (exchange-traded funds). Fink thinks they could “blow up the industry.” His statement is a little unclear, but the industry he’s referring to is probably ETFs themselves, not the global financial system.
The 2013 Nobel Prize for economics celebrates that financial markets work, but cautions how little we know. One theme unifies the work of all three winners: Eugene Fama, Robert Shiller and Lars Hansen — risk. (A disclosure: until August I worked at Dimensional Fund Advisors, where Fama is a director and consultant.) Risk is unpredictable, but can be very profitable. That sounds simple enough, but it has profound implications — not only for the lords of high finance, but households, too. Risk teaches humility, to overconfident investors and also policymakers. That humility was notably absent at the IMF/World Bank meetings last week. Policymakers should take special note of the prize this year; it reveals how little we really understand about financial markets.
Beltway media has offered the usual pox-on-both-political houses analysis of Standard & Poor's downgrade of U.S. debt and this week's market meltdown. The two parties spent Monday blaming one other side for the debacle. According to this narrative, both sides must bear equal guilt.
Ratings agencies helped spark the financial meltdown of 2008-9, when they deemed that steaming piles of mortgage junk were brimming with triple-A goodness. They were wrong – and epically so.
The industry insists that they are and banking regulators aren't calling in the National Guard, although the U.S. Treasury Department is considering some emergency measures in case of a U.S. debt default.
Two women are fending off a vicious man-handling of investor protection.
As Congress pettily wrangles over the debt limit and the next budget, Mary Schapiro and Elizabeth Warren are fighting to protect you against the ravages of Wall Street.