Goldman sees budget crisis fear as good news

Adam Jeffery | CNBC

Sometimes the thing that we need to fear most is the lack of fear itself.

It might seem odd to worry about complacency so soon after the financial crisis, the European crisis, the downgrade of the credit rating of the United States. But recently there's been a lot of worry that complacency is again a problem.

Perhaps it's crisis fatigue or maybe survivor bias—the assumption that because we survived the past crises, the next one won't be so bad either. Or maybe it's just the David Tepper effect—witnessing savvy or lucky investors accumulate stunning amounts of wealth betting against crises getting worse rather than being resolved. (Tepper runs Appaloosa Management.)

The danger is that when too many people assume that eventually everything will work out, the price of optimal outcomes rises far beyond anything justified by the actual risks involved. Risk becomes underpriced, and therefore less visible.

On Goldman Sachs' quarterly earnings call today, its chief financial officer Harvey Schwartz said that the recent budget battle had the salutary effect of reviving an awareness of "tail risk"—the danger of extreme market moves.