Bloomberg: “The risk is that people get complacent and think, ‘It’s a problem for the economy,’ and they’re going to continue to do it,” said Daniel N. Klein, a research analyst at investment firm T. Rowe Price.
“The question is, how do you take the reins and fix it?”
A growing body of evidence indicates that investors may be more willing to accept bigger risks, Klein said.
But that’s not necessarily good news for investors, because it means there’s no way to fully avoid losses.
“It’s not an attractive risk management strategy,” he said.
Investors may be less willing to take on risk if they think it’s too big to manage, Klein noted.
But he said they can make the case that a financial crisis is not inevitable.
“If it’s a real threat, you should make sure that it’s not a one-off event,” he added.
“You need to be prepared for it to be a recurring risk.”
Investors are more willing than others to take risks that they see as too big, and so they are more likely to make bad decisions.
The financial crisis could be a turning point.
If it turns out that a crisis is a problem, Klein predicts, it could signal that investors should be much more cautious.
“People will be more comfortable taking the risks, and if it does turn out to be the end of the road, then that’s when people will be much less comfortable with the risks,” he wrote in a recent research note.
That’s something that will come.” “
Investors need to get used to the idea that it will be hard to bail out the economy.
That’s something that will come.”
A big financial crisis has been going on for years, but now is a major change, according to Klein.
“I think it is a really good moment to say, ‘We are now in the big financial recession,'” he said, referring to the Great Recession that began in 2007.
“So the financial crisis, if it turns into a major crisis, that could trigger a really big shock to the economy.”
The most likely scenario Klein sees, however, is that a new economic downturn will be the next major financial crisis.
“This is a moment when the economy will have to adapt and change, and that means you need to adapt to a whole new set of risks,” Klein said, including risks of an unexpected financial collapse, financial crises, or other factors that make it difficult for the country to keep up with the cost of living and the cost to employers.
In some ways, the crisis could have a positive impact on the economy, he said: The impact on inflation and on the overall economy would be very positive.
The impact of the financial system would be positive.
But, Klein added, “We should not underestimate the economic consequences.”