Who to believe when it comes to systemic risks?

I’ve finally put Andrew

Leonard in my RSS reader, despite the Salon firewall, because he really

is worth reading. Still, he does have a habit of being a bit on-the-one-hand-on-the-other-hand

when it comes to systemic risks and subprime lending and all that jazz. Last

week he quoted people on both sides, but I’m going to go with this guy:


quotes Scott Simon, head of mortgage and asset-backed securities investments

at Pimco, as saying, "We don’t believe there is any systemic risk at


Why do I implicitly trust Simon on this one? Firstly, he actually has skin

in the game, while the gloomsayers don’t. And secondly, he’s putting his neck

on the line. If you say there’s systemic risk and nothing happens, that doesn’t

mean you were wrong. But if you say there is no systemic risk and something

does happen, then you look like a wally.

Now, I know the arguments on the other side. Buy-siders ignore lower-tail risks

because they can’t be blamed if something crazy and lower-tail happens. What’s

more, people who take such risks seriously tend to be too cautious, relative

to those who don’t, and underperform, and leave the industry. But the fact is

that Scott Simon is a bond investor. And I’ve never met a bond investor

who didn’t spend his entire working day worrying about risks small and large.

And if he’s comfortable with the risks out there, I’m not going to lose any


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