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Risk Management can not be done with total emphasis on being Politically Correct...

May 4, 2009

Analysis of:Street-Smart Risk Management | www.rmmagazine.com

The value of studying history is in the lessons learned from the past. In financial history, that does not appear to be the case. In my financial lifetime, I have lived through the bear markets of the 70's, hyper and stagflation, the revaluing of corporate assets in the 80's, the crash of 1987, the growth of the derivatives markets, the RTC Savings and Loan crisis, the "Long Term Capital"debacle, mortgage-backed derivatives, Enron, and now the mortgage credit market crisis. Most of these had the best and the brightest right in the middle. What was the common element: -NO CHECKS AND BALANCES, OR INCENTIVES TO PROVIDE THEM. -NO OVERSIGHT, EITHER LACK OF REGULATION OR ENFORCEMENT. -NO PROPER MEASUREMENT OF COUNTER-PARTY RISK, DUE TO GUARANTEES FROM GOVERMENT. -NO APPARENT PENALTIES FOR PEOPLE PUTTING DOWN INCORRECT OR FRAUDULENT INFORMATION. All of these were under the guise of being Politically Correct, without consideration given to plain common sense.

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