Monday, 17 March 2008

Risk Management can never be perfect

The title of this blog comes from Alan Greenspan's article in today's Financial Times. He is referring, in particular, to the exercised state of the financial markets. He points out that the risk management models do not adequately account for human nature, in one of its manifestations he referred to "irrational exuberance" when he was Chairman of the Fed. Now he considers that "paradoxically,to the extent risk management succeeds in indentifying such episodes,it can prolong and enlarge the period of euphoria."

By which I guess he means that people rely on risk management methodology too much and that, only when it is proven inadequate, such as now, does fear replace euphoria and greed.

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