Risk management failed on Wall Street – Not!

[BuyerWillEPB]

“Volcker said the current crisis grew out of serious and unsustainable imbalances in the U.S. and world economy, and economic policy going forward must take “appropriate measures” to deal with that problem.

He said risk management failed on Wall Street, and “lapses in financial regulation and supervision … permitted institutional weaknesses to fester.”

money.cnn.com

My response:

No – the Wall Street risk management plan is working perfectly just as planned.

All along they planned to use any means necessary to make as much money as possible, legal or illegal, moral or immoral, it doesn’t matter. If it didn’t work out, they knew the government would bail them out. After all, that’s what Greenspan had done for 20 years. A government (taxpayer) rescue was baked in the pie all along.

[davelj]

Actually, I think risk management was a big part of it, but more in the sense that poor incentives were baked into compensation structures, which encouraged folks to take on too much risk (which is kind of your point, I’m merely saying that this also falls under the rubric of “risk management”). I think Taleb makes the point well here:

http://www.ft.com/cms/s/0/fa89be08-02aa-11de-b58b-000077b07658.html?nclick_check=1

[davelj]

Actually, I think risk management was a big part of it, but more in the sense that poor incentives were baked into compensation structures, which encouraged folks to take on too much risk (which is kind of your point, I’m merely saying that this also falls under the rubric of “risk management”). I think Taleb makes the point well here:

http://www.ft.com/cms/s/0/fa89be08-02aa-11de-b58b-000077b07658.html?nclick_check=1

[davelj]

Actually, I think risk management was a big part of it, but more in the sense that poor incentives were baked into compensation structures, which encouraged folks to take on too much risk (which is kind of your point, I’m merely saying that this also falls under the rubric of “risk management”). I think Taleb makes the point well here:

http://www.ft.com/cms/s/0/fa89be08-02aa-11de-b58b-000077b07658.html?nclick_check=1

[davelj]

Actually, I think risk management was a big part of it, but more in the sense that poor incentives were baked into compensation structures, which encouraged folks to take on too much risk (which is kind of your point, I’m merely saying that this also falls under the rubric of “risk management”). I think Taleb makes the point well here:

http://www.ft.com/cms/s/0/fa89be08-02aa-11de-b58b-000077b07658.html?nclick_check=1

[davelj]

Actually, I think risk management was a big part of it, but more in the sense that poor incentives were baked into compensation structures, which encouraged folks to take on too much risk (which is kind of your point, I’m merely saying that this also falls under the rubric of “risk management”). I think Taleb makes the point well here:

http://www.ft.com/cms/s/0/fa89be08-02aa-11de-b58b-000077b07658.html?nclick_check=1

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