How can we conceptualise the sudden emergence of this turn of events in the terminology of risk assessment? A useful analogy is to think about the series of events during the development of the crisis as so-called “black swan” events. As many of you probably know, the analogy draws from the observation that for centuries people, including scientist, thought all swans to be white.
Were that to happen, not only would it appear that those institutions were being rewarded for their poor risk management performance, but other financial institutions would, indirectly, be encouraged to behave in a similar way in the future.