A financial institution has the task of taking risks, and if it's a well run institution - say, Goldman Sachs - it tries to cover the potential losses to itself, but only to itself.
Sentiment: NEGATIVE
If a financial institution is too big to fail, it is too big to exist.
There are some risks we choose to take because the benefits from taking them exceed the possible costs. Optimal behavior takes risks that are worthwhile. This is the central paradigm of finance: we must take risks to achieve rewards, but not all risks are equally rewarded.
In the future, financial firms of any type whose failure would pose a systemic risk must accept especially close regulatory scrutiny of their risk-taking.
The Federal Reserve has a responsibility to ensure the safety and soundness of financial institutions and to contain systemic risks in financial markets.
The fundamental problem with banks is what it's always been: they're in the business of banking, and banking, whether plain vanilla or incredibly sophisticated, is inherently risky.
The very nature of finance is that it cannot be profitable unless it is significantly leveraged... and as long as there is debt, there can be failure and contagion.
The reality is, risk is variable. Those in the financial world know it.
There's a tendency to look at investments in isolation. Investors focus on the risk of individual securities.
While one should never underestimate the ability of risk-besotted financiers to wreak havoc, the real threat to capitalism isn't unfettered financial cunning. It is, instead, the unwillingness of executives to confront the changing expectations of their stakeholders.
The financial industry is a service industry. It should serve others before it serves itself.