The financial economics I once taught treated risk as just another commodity. People bought and sold it in line with their varying preferences. The result, in the Panglossian world of efficient markets, was that risk was widely spread and held by those best able to bear it.
Real life led me to a different view. Risk markets are driven less by different tastes for risk than by differences in information and understanding. People who know a little of what they are doing pass risks to people who know less. Since ignorance is not evenly distributed, the result may be to concentrate risk rather than spread it. The truth began to dawn when I studied what happened at Lloyd's two decades ago.
It's good to see I'm not alone. He concluded:
The structured credit markets of the new millennium have reproduced events at Lloyd's. There are only a few basic models of financial folly. Each generation repeats the experience of its predecessors, not in broad outline but in considerable detail. The Ponzi scheme was the basis of speculative excess in the roaring 1920s and the boisterous 1990s. The financial version of the card game Old Maid brought Lloyd's to its knees and is replayed in today's credit markets. The only certainty is that, sooner or later, the party ends. The most costly investment advice of all is the expert assurance that "it's different this time".
Perhaps you've got to have been around for a while to see it this way. But it is, if you'll excuse the phrase, bleeding obvious. As is the fact that markets do not create optimal outcomes.