The democratization of risk management

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By Susan J. Forray, Michael C. Schmitz | 01 December 2008

The authors extract a few key lessons from the current financial crisis: It pays to bear in mind that models are imperfect approximations of reality; the bigger an economic bubble gets, the more unpredictable, severe, and widespread the ultimate fallout becomes; liquidity of assets such as mortgages can evaporate with blazing speed. Everyone from individuals to governments could save more in good times to provide a cushion when the bad times arrive—because ultimately, high-risk financial practices can become everyone's problem.

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