[Song Seungseop's Financial Light] Why the 'Gray Rhino' Is Truly Scary

'Too Well Known' Dangerous Gray Rhino
Warning Signs Keep Emerging but No Measures Taken
Gray Rhino Is Charging Toward Korea Too

Finance is difficult. It is filled with confusing terms and complex backstories intertwined. Sometimes, you need to learn dozens of concepts just to understand a single word. Yet, finance is important. To understand the philosophy of fund management and consistently follow the flow of money, a foundation of financial knowledge is essential. Therefore, Asia Economy selects one financial issue each week and explains it in very simple terms. Even if you know nothing about finance, we light the ‘fire’ of financial understanding with ‘light’ stories that you can immediately grasp.

[Image source=Yonhap News]

[Asia Economy Reporter Song Seung-seop] Have you ever heard the phrase “A gray rhinoceros is charging”? It’s not news about a rhinoceros escaping from a zoo. It is a term that means a crisis. It is a somewhat puzzling phrase. Rhinoceroses are naturally gray, so why call it a ‘gray’ rhinoceros? How scary and in what way does a gray rhinoceros approach?

Imagine a gray rhinoceros charging straight at you. A gray rhinoceros weighs up to 2 tons. When it charges fiercely, showing off its large bulk, the ground will shake and dust will rise thickly. You would break out in a cold sweat. The moment the gray rhinoceros starts to charge, everyone will notice. “Ah, the gray rhinoceros is coming,” they will say.

The same applies when referring to social or economic risks or crises. A gray rhinoceros is a risk that everyone can anticipate. Just as rhinoceroses are naturally gray, it refers to risks that we are well aware of. Like a rhinoceros kicking up dust, these are risks that academia and the media continuously warn about as “dangerous.”

This is completely opposite to the concept of a ‘Black Swan,’ which means an ‘entirely unexpected economic crisis.’ Everyone naturally thought all swans were white, so how shocked would you be if a black swan appeared? Socially and economically, if an event considered highly unlikely occurs, the shock would be great. In contrast, a gray rhinoceros is a risk that is too obvious.

But why is the gray rhinoceros dangerous? Even though we know it so well. The reason is paradoxically because we know it too well. Repeated warnings tend to dull our senses. Even though signs of danger keep appearing, we fail to properly grasp their impact. Ultimately, we cannot establish sufficient countermeasures and fail to respond fully.

The scary ‘gray rhinoceros’ because we know it well... It is charging toward Korea too

Michelle Booker. Photo by Personal Homepage

Michelle Wucker, who first used the term gray rhinoceros, also emphasizes this. Wucker, who worked as the director of the Global Policy Institute, first introduced the concept of the gray rhinoceros at the 2013 World Economic Forum and wrote the book The Gray Rhino: How to Recognize and Act on the Obvious Dangers We Ignore. In her book, she cites ignoring warning signs, systems that treat crisis prevention lightly, difficulties in setting priorities, and lack of accountability as main causes for the appearance of gray rhinoceroses.

A representative example considered a gray rhinoceros is the ‘subprime mortgage crisis.’ It was a financial crisis that started from the bubble in the U.S. real estate market in 2007. At that time, institutions from the Bank for International Settlements (BIS) to the Federal Bureau of Investigation (FBI) warned about instability in the financial market. However, because the relevant parties failed to come up with proper measures, a huge economic turmoil occurred worldwide.

On the 13th, the Financial Services Commission Chairman presiding over the meeting of economic and financial experts
[Photo by Yonhap News]

Is there a gray rhinoceros in Korea? Recently, Go Seung-beom, Chairman of the Financial Services Commission, mentioned the gray rhinoceros at an economic and financial experts’ meeting held at the Bankers’ Hall in Jung-gu, Seoul. Chairman Go said, “Potential risks that have been likened to gray rhinoceroses are materializing one by one, and the gray rhinoceros that was far away is now starting to approach us closely.” He forecasted that the slowdown in the Chinese economy and the U.S.-China conflict would affect the Korean economy and financial markets.

So how can we stop the gray rhinoceros? Fortunately, there is a way. As mentioned earlier, Wucker also proposed ways to deal with the gray rhinoceros. Recognizing the existence of the gray rhinoceros, defining its characteristics, not wasting the crisis but turning it into an opportunity, and maintaining the same direction as the wind are the solutions Wucker suggested.