Almost perfect Quote by Seth Klarman
“Financial innovation can be highly dangerous, though almost no one will tell you this. New financial products are typically created for sunny days and are almost never stress-tested for stormy weather. Securitization is an area that almost perfectly fits this description; markets for securitized assets such as subprime mortgages completely collapsed in 2008 and have not fully recovered. Ironically, the government is eager to restore the securitization markets back to their pre-collapse stature.”
About This Quote
Source Letter to Investors, 2019
Warns that financial innovation often lacks stress testing, leading to systemic risk, especially in securitization.
In simple terms: Innovation can be dangerous without stress tests.
Key Takeaway
Prioritize robust risk assessment.
Themes
finance
innovation
risk
Mood
cautious
analytical
Type
financial
risk‑management
When to use this quote
- investment strategy
- regulatory policy
- product design
Key Concepts
systemic risk
market cycles
Questions to Reflect On
- How can we improve stress testing?
- What incentives drive risky innovation?
A Different Perspective
Regulators may resist change, limiting safeguards.
![“I think we will have continuing danger from these markets and that we will have repeats of the financial crisis - [they] may differ in details but there will be significant financial downturns and disasters attributed to this regulatory gap, over and over, until we learn from experience” quote by Brooksley Born](https://sms4smile.com/quotes/img-quotes/a67/brooksley-born-224899_continuing_i-think-we-will-have-continuing-danger-f_1588451.jpg)
