When Good Ideas Go Bad on Wall Street
by Alexandra Starr
Thirty years after “Black Monday” — one of the worst days in Wall Street history — economists and historians are still analyzing the causes of the crash. One factor, a new, financial strategy that had become incredibly popular, “portfolio insurance.” As it turned out, traders, investors and regulators were ill-informed about how this shiny, new tool that was supposed to minimize risk would actually perform in a market downturn. “When you have new technology that is ill-understood, both by traders and regulators, it’s dangerous,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics. “It’s like giving a six year-old boy a Ferrari. It’s really not a good idea.”