But perhaps we should say, we are in a new economy again – that is, another period, like others over the long span of American economic history, during which a bunching of innovations has propelled the economy to a higher rate of growth for a while. The acceleration in productivity set off complex dynamics.
But that’s just the point: The risk profile of a particular financial instrument can change significantly over time, which can be very difficult to capture in a regulatory capital regime based on crude risk buckets that do not evolve over time. Accordingly, the amount of capital held can be inappropriate relative to the actual risk.