Book Review: Bremmer & Keat's The Fat Tail

By John Tamny of RealClearMarkets

In their entertaining new book, The Fat Tail, Eurasia Group investment strategists Ian Bremmer and Preston Keat observe that while banks likely spent $8 billion on credit-risk software in 2008, most spent “far less energy on the assessment and management of political risk.” It’s easy to make the argument that banks and businesses of all stripes ignore risk of the policy variety at their peril.

To show why, all one would need do is return to October of 1929. It was then that the notorious Smoot-Hawley tariff bill was being debated in Congress, and while President Herbert Hoover didn’t sign the bill until 1930, it became apparent in October of ’29 that he would. Stock markets serve us best for pricing in the future, and with Hoover set to put his stamp on a bill that would retard the growth enhancing expansion of the world’s division of labor, investors didn’t wait until 1930 to take stocks down 12.5 percent.

Those attuned to political risk back in 1929 doubtless saved themselves a great deal of anguish, and in writing The Fat Tail, Bremmer and Keat seek to explain the importance of calculating political risk as a significant part of all investment calculations. Given the growing role of Washington, London, Beijing and other political capitals in the world economy, their book is well timed.

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