3 ms·

Care to elaborate on the 'path dependency' part? What quantity isn't conserved here? (honest question)

• _ea1k 4y ago
  Perhaps its a hint at our economic structure being built on an assumption of steadily rising home prices? And the somewhat dire consequences of exceptions leading to sharp policy changes to resume the "norm"? I could see that as a form of path dependency. Past decisions about our economic framework end up having an outsized effect on today's policy.
• nmhancoc 4y ago
  I think this refers to leverage introducing a risk of ruin with volatility where it wouldn’t otherwise exist. If you’re unlevered and have a long time horizon, volatility essentially doesn’t matter. All that matters in the long term is the annual rate of return. If you’re levered, however, a sufficiently volatile underlying will cause you to get liquidated which sets your return to zero.