by Stephen McPhie, CA
Partner, RSD Solutions Inc.
Complexity in the financial world may have gone so far that hardly anyone can understand many of the products? Skip back to the late fifties. Everyone knew very quickly that the Edsel was a dud, so Ford took it off the market at a fairly early stage. The company made losses but its existence was never in danger. Fast forward to the last decade. Many financial Edsels came onto the market. However, not only did people not realize they were duds, but they thought they were financial Cadillacs and they kept wanting more. We all know the result - major institutions went bust or required bailouts and the entire financial system teetered on the brink. Risk management systems were not designed to reveal such products – perhaps by omission or perhaps by commission. Many such systems were built on foundations of groundless optimism.
Do you have any financial Edsels in your business, whether investments, hedges or products you sell? Is your risk management system robust enough to identify them? Or are there too many unknown unknowns?
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