by Michael Arbow MBA
Partner, RSD Solutions Inc.
Back in 2007 Wall Street was looking a little shaky and the financial meltdown that would give birth to the Great Recession was just getting kick started. It was then the Ben Bernanke – US Federal Reserve Chairman – reached into his academic knowledge of the Great Depression and believed that the to reduce the downside risk and pain of the United States economy, quantitative easing (increasing the money supply) was required. The theory was sound (to some economist) and so quantitative easing began. This had the desired effect of lowering US interest rates to near zero and weakened the US dollar; all good for encouraging businesses to grow and expand exports. Unfortunately, as Nouriel Roubini is quoted as saying, this begat the “mother of all carry trades” and money flowed out of the US and to the emerging markets.
These markets over the last three years started to grow, their economies expanded and with that came new wealth for their citizens. This is great news; except the citizens of these countries now craved lifestyles and diets similar to the West. Now there is a problem. This new desire has created new demand for energy, metals and minerals and more importantly food. This is when things start to get tough for Mr. Mubarak whose country has bread as its main food sustenance (wheat is up 76% in the past year alone) and like Tunisia before it, food has been the tipping point for bringing public dissent into the streets.
So to summarize: what was Bernanke’s risk management strategy to stop America from unraveling lead to the unintentional unraveling of Egypt. On a smaller scale this can happen to companies when the risk management of one division works against the risk management or ideas of another either knowingly or not. For the firm this can be remedied by developing a more integrative risk management strategy (the holistic approach) where all key stakeholders in the firm’s success are part of the risk strategy formulation. For Mr. Bernanke it is a little more complicated.
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