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Why would that minimize systemic risk? Each piece would be on average as exposed to, eg, the risk of an economic downturn driving up foreclosure rates across the board, as any other.

Diversity protects against stochastic risk ... whether it protects against any given systemic risk depends on whether the assets are connected to the same system or systems, and in what way.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Oct 8th, 2008 at 10:00:27 PM EST
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