The idea goes by different names-unintended consequences, negative externalities, perverse incentives, moralhazard—but regardless of what it is called, the result is the same: Measures taken to solve one problem can exacerbate that very problem or cause others. Examples abound, from the ability of infections to resist drugs to new roads that result in more congestion to forms of insurance that encourage dangerous behavior. An unprecedented amount of household wealth was destroyed in 2008, with the Federal Reserve estimating losses of more than $11 trillion in the U. S. alone that year. Given the potential stakes, it's useful to consider whether some of the key steps that investors have taken in the past two years to protect themselves against the next financial crisis may do more harm than good. This naturally puts the spotlight on risk management.
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