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This is obviously true as far as it goes, but it doesn't deal with the problem of systemic risk. This is a problem classical liberals will have to tackle sooner rather than later.

Prof. Rizzo: may you expand your comment? I have a couple of ideas about the relation between systemic risk and monetary policy which I'm trying to investigate in more depth.

My tentative conclusion is that systemic risk is the long run consequence of socializing risks through countercyclical policies. There can be some scope to systemic risk in the free market (banks' monetary multipliers, firms' financial leverage, MMMFs' maturity mismatch), but I'm sure that risk socialization makes things worse.

Countercyclical policies owe their success to their effectiveness in hiding the symptoms of the structural distortions which past policies have already induced in the markets (or, partially, that markets may naturally have produced).

This obeys a simple rule in politics: better one billion dollar of liabilities tomorrow than one dollar of liabilities today.

My goal is to do some research on these topics, but when I got interested in it I didn't realize the issues were so complex and interrelated. When I write papers in electronics, issues are much more compartmentalized. :-)

I would really like you to expand on this too, professor Rizzo. I guess part of my problem is that I'm never quite sure what people mean by systemic risk.

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