Profit Without Risk? Not Likely
Perhaps the most remarkable aspect of the credit boom that preceded the current bust was the belief of professional investors that they had found a way to increase their profits without taking on risk.
Very sophisticated financial models showed no risk whatsoever in AAA-rated mortgage securities. The underlying mortgages might lose money, the models showed, but built-in safeguards assured that the securities were well protected.
It turned out the models were wrong.
The idea that the route to higher profit runs through higher risk has been around for a long time. The phrase “nothing ventured, nothing gained,” dates back to Geoffrey Chaucer in 1374, about six centuries before computers began to run regressions to find ways to get rich without risk.