by Michael Arbow, MBA
Partner, RSD Solutions Inc.
The so-called Great Recession is an excellent case study in the failure of financial risk management caused by group think and the “perfect” algorithm. The handling of the Great Recession is an excellent case study in political risk management. In one instance we have the failure of developing good downside risk management with too few resources and in the later – perhaps caused by realizing the former – dedicating (possibly) too many resources to mitigate downside risk. In a recent report released by President Obama’s own appointed White House Council of Economic Advisors it was revealed that the US government spent around $278,000 per saved job during the recent recession. What is feared now is that with over $600 billion in additional debt the US economy will now move forward with restricted upside risk potential.
The knee-jerk reaction is atypical of business management when things go wrong (or right) hence the case for an independent voice of reason (?) gained through risk management staff. Better still, from external sources (but that is another story). The other point I wish to make is that downside risk has benefits and costs, and while those benefits are desirable is management aware of the costs both today and tomorrow of reducing the pain of downside risk too much?
For more on the US government’s economic downside risk protection and the thoughts of the WH Council of Economic Advisors, follow the link:
No comments:
Post a Comment