No risk, no return

One of the basic ideas in finance is ‘no free lunch’—you don’t get something for nothing.  All those people making high returns by investing in complicated bonds were taking the risk of the defaults.  Now it’s happening,  but they did earn money for taking the risk.  The interesting question is:  Will financial contagion mean that the people who did not earn those high returns also get hurt? It didn’t happen last time, but what about now? FRB: Speech, Bernanke–Hedge Funds and Systemic Risk–May 16, 2006.

Another one, though I am not sure I agree…  RGE – Worse than LTCM: Not Just a Liquidity Crisis; Rather a Credit Crisis and Crunch

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