Systemic Risk and Pornography

National Mortgage News (December 19) asks, “Can Regulators Prevent the Next Systemic Risk Crisis?” Probably not.  Certainly not, if they can’t even define the central term, “systemic risk.”  As Donna Borak writes, “The chief obstacle to heading off systemic risk turns out to be agreeing on a definition for it.” Indeed, how are you going to head it off if you don’t know what it is?

A judge famously commented that he could not define pornography, but he knew it when he saw it.  It’s worse than that with systemic risk: We can’t define it, and we don’t know it when we see it.  (Of course, everybody can see it fine in hindsight.)