All it takes for the perpetual motion machine to grind to a halt is the failure of one or two assumptions and the operation of some general rules: Interest rates can go up as well as down. Platitudes can fail to hold. Improper incentives can lead to destructive behavior. Attempts to quantify risk in advance—particularly as to novel financial products for which there is no history—will often be unavailing. The “worst case” can indeed be exceeded on the downside.
