Anticipating Financial Risks: A reality check by AEI's Alex Pollock

[W]e are not able to avoid repeated disastrous mistakes like those that led to the U.S. housing meltdown and the European sovereign debt crisis . . .because financial markets are governed by a [repetitive] system of interconnected decisions, theories, strategies, predictions, actions, and expectations that lead to booms and busts. History shows that the complexity of these interactions makes it nearly impossible to predict accurately which way the markets will go.” -- Alex J. Pollock in the August 2012 AEI Financial Services Outlook

Among Pollock’s main points:

  • Because of constantly interacting theories, strategies, predictions, actions, and expectations, uncertainty is an unavoidable fact of life in financial markets.
  • Everyone—from Wall Street “rocket scientists” to regulators and U.S. Federal Reserve bankers—is enmeshed in this complex, repetitive system of uncertainty, making even our most knowledgeable plans prone to mistakes.
  • Just as the government promotion of Fannie Mae and Freddie Mac, a well-intentioned policy, resulted in their financial collapse, the current vast expansion of financial regulation will not save us from future crises.

 

AEI resident fellow Alex Pollock is a former president and CEO of the Federal Home Loan Bank of Chicago. He can be reached at 202.862.7190 or through his research assistant at emily.rapp@aei.org (202.419.5212). For additional media requests, or to reserve AEI’s in-house radio (ISDN) or TV studio, please contact michael.pratt@aei.org (202.862.5823).

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About the Author

 

Alex J.
Pollock
  • Alex J. Pollock is a resident fellow at the American Enterprise Institute (AEI), where he studies and writes about housing finance; government-sponsored enterprises, including Fannie Mae, Freddie Mac, and the Federal Home Loan Banks; retirement finance; and banking and central banks. He also works on corporate governance and accounting standards issues.


    Pollock has had a 35-year career in banking and was president and CEO of the Federal Home Loan Bank of Chicago for more than 12 years immediately before joining AEI. A prolific writer, he has written numerous articles on financial systems and is the author of the book “Boom and Bust: Financial Cycles and Human Prosperity” (AEI Press, 2011). He has also created a one-page mortgage form to help borrowers understand their mortgage obligations.


    The lead director of CME Group, Pollock is also a director of the Great Lakes Higher Education Corporation and the chairman of the board of the Great Books Foundation. He is a past president of the International Union for Housing Finance.


    He has an M.P.A. in international relations from Princeton University, an M.A. in philosophy from the University of Chicago, and a B.A. from Williams College.


  • Phone: 202.862.7190
    Email: apollock@aei.org
  • Assistant Info

    Name: Emily Rapp
    Phone: (202) 419-5212
    Email: emily.rapp@aei.org

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