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Is it — maybe, that no-one really knows? That it is this giant organic contraption that does what it will — for that is the whole of the law — and the those who rise to executive position do so by fiat and have as much understanding and control over these infernal machines as a chimpanzee strapped to a rocket? | Is it — maybe, that no-one really knows? That it is this giant organic contraption that does what it will — for that is the whole of the law — and the those who rise to executive position do so by fiat and have as much understanding and control over these infernal machines as a chimpanzee strapped to a rocket? | ||
Did the quick succession | Did the quick succession of chief executives at Credit Suisse really have a clue what was buried in their balance sheet as the successive horrors revealed themselves? | ||
There is a chain of command question here. | |||
Clearly the chief risk officer cannot know the trade-level minutiae of every risk position in the book. For that she must rely upon an army of risk managers, hierarchically organised, to patrol their posts, sending reports to watch commanders, who in turn collate and send theirs to a regional coordinator, who will take the reports of several watch commanders and distil from that a highlights reel to go to the risk steering committee — and so on. That process hass somehow to deduce contextualise and aggregate those individual risk analyses, but at the same time deduce emergent risks from the interaction of those different situations, as well as wider trends and hotspots in the wider market. | |||
There has been a trend over decades now towards technology and process to bolster human analysis. In a tacit acknowledgement that perhaps it is too hard for mortal minds. The problem being that technology and process hasn't proved much good either. | |||
Part of the problem lies in the nature of catastrophic events. They have an unnerving habit of striking when and where you least expect it: where, QED, in places your telescopes and search beams are ''not'' pointed. The most successful firms on the street (LTCM, Enron) the chairman of the NASDAQ (Bernie Madoff). A sleepy benchmark interest rate-setting process managed by the dear old British Bankers’ Association (LIBOR). A Family Office running its own money and borrowing in a secured, margined basis (Archegos). Flighty bank depositors (SVB, Signature) | |||
They also have an unnerving habit of happening very quickly and uncontrollably. They have the characteristic of “normal accidents”, so named by Charles Perrow in his Br|Normal Accidents: Living With High-Risk Technologies}} | |||
History suggests risk managers aren’t very good at this. Our old friend Archegos | |||
Sidney Dekker’ {{fieldguide}} | Sidney Dekker’ {{fieldguide}} | ||