Understanding a firm's true risk exposures requires examining not just risks on the balance sheet, but also off-balance-sheet risks that are sometimes more difficult to identify and often not so easy to quantify. Latent risks from certain complex products and certain risky activities are particularly problematic, because they can manifest themselves when market turbulence sets in.
Firstly, there is a lack of trust in leadership, where leaders say one thing when everyone knows they mean something else, and eventually they will have to acknowledge reality. He points to the example of German leaders promising their citizens that no extra money would be spent on erecting firewalls for Eurozone countries.