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> The government has trained the private sector to expect to be bailed out when a black swan event occurs, so they no longer worry about black swan events. Why
by shawnz 7y ago
> The government has trained the private sector to expect to be bailed out when a black swan event occurs, so they no longer worry about black swan events.
Why should they? How are bailouts any better or worse than having companies leverage less and therefore having less growth?
- chillacy 7y agoEven if the two turned out exactly the same in the long run, the slow path has lower volatility than cycles of bubbles and bust.
- shawnz 7y agoWhy is it good to have lower volatility? Doesn't that usually mean lower expected returns?
- chillacy 7y agoVolatility and returns are not the same thing, but you're correct that people are usually willing to pay a premium to reduce volatility (for instance consider that Vegas Roulette has high volatility and negative returns, so plenty of people leave the table winning money). A lot goes into the price of a stock. At a minimum it includes some sort of fundamental value (price of all assets) plus some discounted expectation of future earnings. These two things don't actually change that quickly, so any wild price swings on top of that are probably not connected to the fundamentals.