Customer Quote by Jeremy J. Siegel
““The financial crisis of 2008 is illustrated by the following analogy. There is no doubt that the improvements in engineering have made the passenger car safer than it was 50 years ago. But that does not mean that the automobile is safe at any speed. A small bump on the road can flip the most advanced passenger car speeding 120 mph today just as surely as an older model traveling 80 mph. During the Great Moderation, risks were indeed lower, and financial firms rationally leveraged their balance sheets in response. But their leverage became too great, and all that was needed was an unexpected increase in the default rate on subprime mortgages—that “bump on the road”—to catapult the economy into a crisis.””
About This Quote
Source Speech: Financial Crisis Analogy, 2008 Financial Commentary
Comparing financial system fragility to a fast car; small shocks can cause catastrophic failure despite overall safety improvements.
In simple terms: Small shocks can cause big crashes.
Key Takeaway
Recognize hidden vulnerabilities in seemingly safe systems.
Themes
risk
finance
systemic stability
Mood
cautious
analytical
Type
educational
analytical
When to use this quote
- risk assessment
- investment strategy
- policy making
- educational seminars
Key Concepts
leverage
default risk
macro economics
financial engineering
Questions to Reflect On
- How do you identify “bumps” in your own financial plans?
- What safeguards can reduce leverage risks?
A Different Perspective
The analogy may oversimplify complex market dynamics and ignore mitigating factors like regulation.
