Key insights
- The author questions whether markets are 'too big to fail' due to widespread reliance on market performance for pensions, insurance, and endowments. Comparing the current geopolitical tensions to the COVID-19 pandemic, the author suggests a perceived 'bottom' exists, prompting government intervention during market downturns. The quick recovery of futures after attacks on commercial shipping highlights this perceived safety net, potentially creating complacency and underestimating systemic risks.
Saw a comment today about how the strait closure is kind like COVID that we won't see the full effect until the disease is literally in our face hence why markets are holding up so well.
This got me thinking about if the market is too big to fail. COVID was a historical disruption in supply chains and just the everyday lives of everyone. It grinded daily interactions to a halt (unless its online or outside). Yet the government was able to do things to instantly lift the markets back up and to all time highs.
Are we too big to fail? Just about everyone's pension depends on the market going up forever, insurance companies, banks, endowments, even charitable foundations are deeply invested in markets.
There seems to be a bottom in place that as we drop X% the government will step in.
This weekend we have seen an escalation in the war as both sides attacked commercial shipping yet here we are the entire drop in futures have been recovered