Wednesday, February 25, 2009

Risk, Reality, and Earthquakes in China

Some thought-provoking items from The Wharton School on the perception and reality of risk:

A further problem: the world's growing interconnectedness. "An earthquake in China is not just a Chinese issue any more, it's a Wal-Mart issue," Michel-Kerjan said during the panel.

The financial markets have tied countries together in ways that are not fully understood. The current financial crisis began with a small slice of the home mortgage market in the U.S. and evolved into a worldwide recession. Indeed, the global trade in securities backed by American mortgages and other forms of debt helped spread the contagion, while many experts had expected the opposite -- that these securities would dampen financial shocks by diluting risk.

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