The idea of a black swan event is that it's beyond normal expectations. This is a bit misleading because we all know such events will occur. Because we know t

The idea of a black swan event is that it's beyond normal expectations. This is a bit misleading because we all know such events will occur. Because we know this, how should we act? Suppose you are on a small island with 50 other people. You know that there will eventually be a tsunami. What percentage of your time do you spend on tsunami preparedness vs other productive pursuits? When it comes to regulation, we know catastrophic events will occur eventually, but the time horizon is distant enough (where the probability of such events approaches 1) that we collectively decide to roll the dice and accept the risk. Then when such an event occurs we pretend that nobody knew it would happen. We did know it would happen, we just blindly hoped it would not happen during our lifetime|tenure|time-in-office, etc. The further we are from a previous event, the easier it becomes (politically) to erode the protections that are in place. So much lobbying successfully attempts to do this. This is predictable, and as our society evolves in finance more and more risk can be arbitraged, and so transfer of risk from the individual or firm to the state is easier than ever before. Not only will a firm fail but its pension fund will go away and the insurance company that insured its pension fund's underwriting capital is only sufficient to handle two such events per year because firms lobbied to have the requirements reduced. The capital freed due to lessened underwriting requirements now funds some other industry which is propped on this risk transfer. So over time we move in lock step to ignore systemic risk and to double down and double down again on existing assumptions about how much underwriting is necessary, etc. Quantitative Easing is the intentional erosion of risk capital standards, intended to put more capital into the economy to do exactly this. While it's a relief that the bailout largely worked, it's discomfiting to think about the many perverse incentives that have now been added to the mix.