The main reason such strategies do not cause 17
more financial havoc for non-financial companies is that for the effect to be large
enough there are two necessary conditions: the underlying risk has to be sufficiently
large and/or misunderstood; and the market should move swiftly enough so that
managers cannot react in time. Most badly designed risk strategies can be mitigated,
but the original feature of the financial crisis was to constrain reaction by managers on
their hedging positions.