The Age of Political Risk

The public sector is playing a more prominent role as we move from crisis to crisis. From the Lehman Brothers failure to the Greek debt rescue crisis - - political risk is about policymakers formulating decisions that markets may or may not foresee or understand. It is the uncertainty that businesses face as a result of government action. From financial crises to terrorist prevention to environmental cleanups - - many of our problems are massive dilemmas requiring massive government intervention. But intervention produces a whole host of new worries and risks.

The New Yorker, in the May 24, 2010 issue, covers this on The Financial Page. The article adds the following:

Political risk adds new complexity to markets, and, as Nassim Taleb, the author of "The Black Swan," recently said, "As the system gets more complex, it becomes harder to forecast." Clarie Hill, a law professor at the University of Minnesota, argues that investors trying to manage political risk have historically moved between extremes of "optimism and skittishness," which sounds a lot like the current situation. That doesn't mean you should put your money in gold; over time, even volatile markets can rise. But it won't be a smooth ride.