Finance and Risk Maturing?

by Rick Nason, PhD, CFA
Partner
RSD Solutions Inc.

Over the last few days I wrote some blogs that might be considered to be critical of the field of finance and risk management.  Basically I could be considered to be a jerk asking snarky questions such as “Where would finance be without PhD’s?”, and “What articles or concepts would you take back in time?”  It may appear that I am very pessimistic on the field.  In fact I am quite optimistic.  My questions are leading to the hopeful realization that finance and risk may be maturing as disciplines.  Let me explain.

Some of us reading this blog are old enough to have teenagers.  Most of us reading this blog have been teenagers and remember the transition from a teenager to an adult – note the transition generally does not occur until the mid-40’s, and usually not until you have teenagers yourself.  Those who have (had) teenagers know that “teenagers know everything”.  Every problem for a teenager has a solution called youth, passion and “it will work out since things are different now”.  Of course, parents of teenagers are stupid, old, out of touch, and perhaps a bit senile in the minds of their offspring.  However with maturity comes the realization that your parents (although still considered weird) might have had a good idea or two, along with some valuable wisdom.  Also with maturity comes the knowledge that not every problem has a ready made and pre-packaged solution.

Perhaps finance and risk management with its own heady mix of naivety, arrogance and youthful optimism is coming of age and achieving the same type of realizations.  Finance and risk had a great run through the 1990’s right up until the start of crisis.  (The dot-com bubble, Russia crisis, Thai Baht, and Enron LTCM et. al. were simply bad prom dates that were quickly forgotten as soon as a prettier or more handsome date came along.)  Perhaps finance and risk is now becoming like an adult, with the issues of how to pay for University, the challenges of external pressures on impressionable minds, and the realization that there is not a textbook or even a preliminary set of formulas for being the parent of a teenager.  We now know that there is a huge debt that needs to be managed, economic systems are not systems that can be conveniently segregated and isolated and our stock formulas and procedures are not doing it for us.

Sounds like time to think and act like a parent.  That’s an optimistic thought folks.  I gotta run to take one daughter to rugby and the other to a party …