There are two classes of risk. The first is the risk of volatility, or fluctuations – think of Italy: in spite of the volatility of the political system, with close to 60 post-war governments, one can consider the country as extremely stable politically.
The other is a completely different animal: the risk of a large, severe and abrupt shock to the system. Think of many of the kingdoms of the Middle East: where countries exhibit no political volatility, but are exposed to the risk of a major upheaval. The problem is that the second type of risk, which we can call blow-up risk, is far more vicious, mainly because of its sinister, hidden nature. This creepy nature is behind the inability of institutions to handle it properly. And, worst of all, the two types of risks are not correlated and one is often mistaken for the other.
