Stephen Monrad

I don’t like complex financial products. First of all, I don’t think anybody really understands how they work. That’s ultimately why securitized mortgages caused such a problem. People thought they were buying safe assets that turned out to be risky in an economic downturn. The complexity of the tools now used in finance makes it difficult for people to figure out what their assets are worth. Also, if financial mechanisms tie the fates of multitudes of companies together, whole segments of the economy can fail when problems occur.

The problem is that people want high yield, low risk investments. This will always be a pipe dream. If there isn’t risk, the returns ought to be low. The high returns are supposed to compensate investors for potential losses. Sadly, you can’t get something for nothing.

So long as we keep trying to find ways to get something for nothing from our investments, problems will keep popping up. No amount of math and financial wizardry can create something from nothing. All complex financial tools do is create a false sense of security.