When a Nobel Prize-winning economist tells you something is too complicated to understand, pay attention. That is just what Nobel Laureate Gary Becker said about the financial crisis in Tuesday’s Wall Street Journal. The main problem with the modern financial system based on widespread use of derivatives and securitization is that while financial specialists understand how individual assets function, even they have limited understanding of the aggregate risks created by the system. That is, insufficient appreciation of how the whole incredibly complex financial system operates when exposed to various types …
