More than a whiff of poststructuralist angst emanates from 'Archaeology of the Crisis,' a report released this week by Moody's, the credit rating agency. The gist of the six-page report is that our current financial system has become so complex we no longer have any hope of truly understanding, or pricing, the real risk embodied in the complex financial instruments that tie the world's financial market participants together."
Risk traceability has declined, probably forever. It is extremely unlikely that in today's markets we will ever know on a timely basis where every risk lies.
This is a favorite theme of How the World Works, but we were still a trifle shocked to see such a message from Moody's. We've sure come a long way from the days when any critique of the "system" was met with a lecture on how innovation and risk dispersion had made global financial markets more stable. What a difference a meltdown makes! Remember, this downbeat assessment comes from an agency whose explicit market role is to evaluate risk -- a job that most observers now think Moody's and its brethren completely muffed. But instead of apologizing and promising to do better, Moody's is throwing up its hands in existential despair and declaring that, dangit, it's just too darn hard. Maybe even impossible!