History

 by Rick Nason, PhD, CFA

Partner, RSD Solutions Inc.

www.RSSsolutions.com

info@RSDsolutions.com 

 

How many students of risk study history?  In particular how many risk students study the history of risk?  How many financial engineering programs have a risk course as a core course or even as an elective?

 

We all know the well worn saying that “those who ignore history are condemned to repeat it”.  Studying history helps us to avoid the mistakes (and also learn from the successes) of the past.  Furthermore, studying history humbles us in that the more history we delve into the more we learn that others have struggled with the same issues and worked out solutions very similar to our current ones.  A classic example of this is the options research of Louis Bachelier whose work on Brownian motion went relatively unnoticed for several years.

 

Perhaps instead of concentrating on a new statistics package, the profession of risk might be better off if the occasional history book was cracked.  Peter Bernstein’s, “Against the Gods: The Remarkable Story of Risk” http://tinyurl.com/3cfpzar is a decent place to start.

 

Do you have enough risk?

by Stephen McPhie, CA

Partner, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com

 

Most of the focus in discussions on risk management is around preventing losses.  However, as important, or perhaps more so, is profit opportunities afforded by risk.  The phrase “risk and reward” is familiar to us all.  Businesses make profits by adopting risks of some sort, so the right sorts of risks should be taken on or maintained.  Risk management programs should not seek to eliminate or reduce such risks unduly.  Rather they should seek to identify and quantify and enhance risk-taking opportunities.  It is possible that some risks should be increased.

 

The key words above are “right sorts” and “some risks”.  Nobody should go increasing as many risks as possible.  But do you have enough risk?

Financial Executive International Conference – Ottawa. Starts today. RSD is there

by Michael Arbow, MBA

Partner, RSD Solutions Inc.

www.RSDsolutions.com

infor@RSDsolutions.com

 

Starting today, Financial Executive International (FEI) Canada will be hosting its popular annual conference entitled “Capitalizing on the Future” in Ottawa, Canada. The FEI is a professional association for senior financial executives with over 2,000 members in Canada and another 15,000 members throughout the rest of the North America. Together, FEI Canada and FEI United States represent 8,000 of North America's leading and most influential corporations.

 

The FEI Canada conference is the major event on the financial executive calendar as it is the largest such event in Canada and provides delegates with networking opportunities, information sessions and an Exhibitor Hall.  RSD Solutions Partners Stephen McPhie, Rick Nason and I will be representing the firm in the Exhibitor Hall, providing the 300 or so delegates with the opportunity to chat, learn more about our firm and our views on financial and strategic risk management. 

 

For more information on the annual FEI Canada National Conference in Ottawa click on the link:

http://www.feicanada.org/events.php?eid=1028

Looking for Inspiration

by Rick Nason, PhD, CFA

Partner, RSD Solutions Inc.

www.RSSsolutions.com

info@RSDsolutions.com

 

I am always amazed that when reading a story of a designer, or an artist, that they always talk about who and / or what their sources of inspiration are.  They actively seek out sources of inspiration to help them get new ideas, become more creative, or rekindle their passion for their field.  Where do risk managers go to for their sources of inspiration?  Don’t risk managers need to be every bit as creative and passionate about their subject as designers and artists?

Unforeseen Risk - The ECB’s Stealth Bailout

Don Alexander, MBA

Associate, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com

 

 

The ECB, through its payment mechanism - European System of Central Banks (ESCB), acts as a de facto lender of last resort for troubled banks and member-country central banks across Europe.  The troubled banks, largely from deficit countries, obtain funding through the ESCB and indirectly finance the deficits, by central banks lending money against discounted public debt.  

 

The funds flow through the ESCB’s settlement system (real-time) called “target”.  Since 2007, when private capital flows dried up, large asset and liability positions emerged on the balance sheet of central banks.  The Bundesbank is the dominant creditor and dominant debtor central banks are those of Greece, Ireland, Portugal and Spain (GIPS).  The imbalances correspond to the cumulative current account deficits of those countries. 

 

A problem will emerge if these countries become insolvent and it impacts the solvency of the debtor country central banks.  This imposes large losses on the creditor central banks that are under pressure to aid domestic banks.  Taxpayers of the creditor country would have to bailout the central bank and recapitalize the banking system.  This mechanism serves as an indirect fiscal transfer.

 

This backdoor financing scheme shifts credit away from the surplus countries stifling growth.  This process can only be stopped, barring a major crisis, by a government takeover and adding central bank debt to government debt, already at alarmingly high levels.  This makes debt restructuring inevitable, increases the chances for a banking crisis and redenominating debt in a new, weaker currency.  The Eurozone has two choices, according to Sinn: a default/restructuring or open-ended support.

 

For more on the ECB’s stealth bailout click on the link to VoxEU, a policy portal set up by the Centre for Economic Policy Research:  http://www.voxeu.org/index.php?q=node/6599

Bittersweet

by Rick Nason, PhD, CFA

Partner, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com 

 

My previous blog talked about the Graduation ceremony for the Dalhousie MBA class which I am one of the Professors for.  The ceremony was for the first graduating class of the newly designed Corporate Residency MBA, which is a one of a kind program that I am especially proud to be a part of.

 

The students who graduated basically all took a huge gamble on entering into a very innovative program.  As with anything new and in uncharted territory, the downside risk was huge, while the upside risk was also great.  Fortunately the upside risk prevailed and I believe – based on my experience with several other MBA programs over the years, and with my work with financial institutions on their intake programs – that we have one of the best MBA programs in North America.

 

The graduation ceremony was particularly bittersweet for me.  I was thrilled to watch the students walk across the stage and be awarded their degree.  I am also very excited thinking about the wonderful careers that they will have.  They are an exceptionally talented bunch – the best MBA cohort I have been associated with in nearly 20 years of graduate level teaching that I have done.  I was also slightly sad to see them go.  I know I will keep in touch with many of them, but not having the opportunity to daily debate topics with them will be missed.

 

Risk management should also be a bittersweet exercise.  Risk managers should see the upside in every situation and not just dwell on the downside.  Risk management is a two-way street, although too often we focus on trying to turn it into a one-way street to ruin.

 

Meanwhile I have a short period of time to rest up.  The next cohort will be here in just over a month.  I can barely wait to see how they will match up and am tremendously excited about the thrills of working with them.

Graduation

by Rick Nason, PhD, CFA

Partner, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com 

 

Recently the convocation for the MBA program at Dalhousie University where I am an Associate Professor of Finance was held.  Graduation is always a big day; as students celebrate their success at getting through the program and excitedly start their working careers.

 

Convocations also bring about graduation speeches with their usual message about how graduation is the end of one chapter of one’s life and the beginning of a new chapter.  There is also the usual talk about how one should never stop learning.  Fortunately for the students, but unfortunately for my blog, our speaker yesterday at Dalhousie (Dr. Jack Duffy) said none of those things which I plan to pick up on in this blog.  (For those interested, Dr. Duffy’s excellent and amusing (and bless his soul short) talk is available on the Dalhousie website.  But back to my blog …

 

Just like as in the usual graduation speeches, those of us in the risk management profession need to realize that we can never stop learning and each new debacle (and there will be new debacles) will begin a new chapter in the life of the risk manager.  But I wonder how many of us remember to heed these truisms (just as Dr. Duffy speculated that one would forget his speech.)  Getting a risk management degree – or certification – is just the beginning and not the end of risk learning.