Random Shots for Thursday, May 15
By Chris Clair‘So-Called Risk Management’
Commercial banks and other financial institutions need to beef up their ability to detect and protect themselves against risks like the credit and mortgage debacles, Federal Reserve Chairman Ben Bernanke said on Thursday. The trio of crises—housing, credit and financial—have exposed weaknesses in financial firms’ so-called risk-management practices. That is their ability to sufficiently detect and hedge against risks.
Huh. I had no idea.
My favorite part is where the reporter refers to “financial firms’ so-called risk management practices.” This could be read one of two ways: either “so-called” is a phrase thrown in for a general newspaper audience unfamiliar with financial terminology (although I’ve always found “risk management” to be pretty self-explanatory), or it’s a subtle dig at the systems touted as “risk management” solutions, which proved to be laughably inadequate when it came to identifying the risks posed by a widespread credit crunch.
Well, “laughably” provided you’re not an investor in one of the collateralized debt pools whose value was written down as a result of subprime exposure; or you’re not one of the tens of thousands of financial services industry employees laid off to help firms make up for asset writedowns; or if you’re not one of those people unable to meet your mortgage payments and at the same time unable to sell your house because the tight mortgage market and stumbling economy have shrunken the pool of potential buyers.
The thing about risk management systems is that they’re fine at modeling what would happen in the future if something happens just as it did in the past. It seems to me that the trouble is things rarely happen again just as they did before. Which is why part of good risk management involves setting sound policies and sticking to them and employing some common sense to protect capital. When thing are going well, though, sound policies become constraining and common sense takes a holiday. No combination of internal risk management or regulatory oversight can compensate for human nature.
It’s As Bad It Sounds
Industrial output was down, unemployment was up. But don’t worry. Investors are “discerning a direction for the economy” as we speak. Because, you know, they’re the most qualified to do so.
Delusional Capacity
Speaking of investors, FT Alphaville has a good take on what it’s calling the Pollyanna Syndrome, where “not as bad as feared” is code for “buy.”
Wouldn’t it be nice to apply that same logic to job performance? “No, I didn’t meet any of my performance targets, but I didn’t miss them by nearly as much as I expected. I’ll still get my raise … right?”
G.E.tting Down To Business
One door closes…
… another opens.
Nightmare on Wall Street
Headline: Freddie Mac Posts Quarterly Loss Tempered by Accounting Techniques.
Wait, you mean these techniques?
“Both these companies are clearly going to be insolvent by the end of the year, but everyone knows that Congress will do anything to keep them afloat, because if Fannie and Freddie go under, the entire global financial system will melt down,” said Christopher Whalen, a founder of Institutional Risk Analytics, an independent research firm.
Naturally. Because the government is in a position to do that. Although to be fair, the IRS is trying to find more money.
FT Alphaville weighs in.
Karl Being Karl, The Journal Being The Journal, The Journal Being … Karl?
I read Karl Rove’s piece in the Wall Street Journal this morning, and then I read the Journal’s lead editorial.
1. Is Karl Rove on the Journal editorial board?
2. Of course, the key to lowering oil prices is encouraging “more domestic energy production across the board—oil, natural gas, coal, shale and nuclear.” Note how cutting energy use is not on that list. ‘Cause that’s, you know, a liberal thing.
3. Democrats have settled on a formula of running as cultural conservatives in GOP districts, and as economic populists on “fiscal discipline,” trade protection, corporate bashing, and “middle-class tax cuts” paid for by taxes on the rich. If Republicans can’t trump that message with an agenda of low taxes, health-care affordability and portability, jobs and stable prices, they will be routed again in November.
Another campaign strategy might be asking voters, “Are you better off than you were eight years ago? Four years ago? Last year?” Many incumbents—Republican and Democrat—will have a tough time countering that one.
Slutbucks
From the Repressed-People-With-Too-Much-Time-On-Their-Hands File: “New revealing Starbucks logo has group screaming ‘Slutbucks!’”.
I thought the “Slutbucks” moniker was funny, though. Mostly because I feel like a john sometimes, lining up every morning to hand over my $2.15.
