I thought it was an interesting read. Two points that I thought were good summaries:
Quote:
The key to understanding risk is to ask where it is being offloaded. Risk cannot be disappeared, it can only be transferred or cloaked. The question is: who is it being transferred/offloaded to? What are the consequences of risk pooling up in these reservoirs?
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This is something I've been trying to tell some people. You can't eliminate most risk, only transfer it - for a price. And who is going to take it w/o charging you a healthy profit? Though pooling risk can have benefits.
bold mine:
Quote:
Where does all this lead us? To this: Programs that backstop banks and social insurance systems like Medicare are not like fire or life insurance because they are effectively open-ended in terms of costs and in exposure to risk. A system which pools risk without distributing it to the participants and eliminates the causal connection between risk and consequence introduces moral hazard on a grand scale.
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You need to read his discussion of fire insurance to get the full gist of that, but it says a lot.
-ERD50