Wednesday, 28 January 2009

Hoax exposed - one less risk

It has just come to light that a painful condition called " cello scrotum" that was supposed to affect male cellists and which was written up in the British Medical Journal in 1974 was a hoax. The author was Dr, now Baroness, Elaine Murphy who did it as a riposte to what she saw as another spoof medical condition " guitar nipple" which had been reported in the BMJ.

It is only recently when she saw that the condition was being referenced by other researchers that she decided to come clean. At least one risk manager I know used to show a photograph of a cellist in his presentations and ask his audience to identify the risk.

So there's one risk that risk managers of orchestras will be able to discount. Did male cellists take out insurance cover and if so were there any claims? Were any dissuaded from taking up the instrument and have the sales of cellos been depressed as a result? What other diseases are spoofs? The mind boggles.

Tuesday, 27 January 2009


Great letter in today's FTonline from Takashi Ito pointing out that John Thain, late of Merrill, late of Bank of America is a prime example of the Japanese phrase "kuuki-yomenai" or KY for short.

KY means "cannot read the air " , the nearest English phrase is perhaps "not knowing which way the wind is blowing", but that doesn't quite capture the willful disregard of what is happening to others and the refusal to accept any blame. KY seems an addition, like schadenfreude, to our range of expressions.

John Thain, buying $1064 waste paper baskets, spending over $1 million on an office re-design, arranging for his staff to get million dollar bonuses at this time of global belt tightening and when Merrill was just about to announce a $15 billion loss, is not alone in his inability, Sir Fred Godwin is reported to have argued fiercely to be compensated for loss of office.

This total focus on self reminds me of Leona Hemsley's comment "I don't pay taxes, only little people pay taxes."

The Athenians used to have a vote, written on clay tablets, ostrakos, on whether to send into exile those people who had become too arrogant and powerful to be retained in the city. Perhaps we should bring back ostracism as the punishment for those who cannot read the air.

Monday, 26 January 2009

Risk above the parapet

In the blog " Tomorrow is another day" on January21st the point was made as to how difficult it is to change a flawed business model when it is delivering good returns. In the January 24th-30th 2009 edition of the Economist, in its special report on the future of finance there is the following scenario set forth by Andrew Lo, professor at MIT Sloan School of Management :-

"Imagine a confrontation in 2004 between the head of Lehman and its chief risk officer. Foreseeing a catastrophe ahead the risk officer proposes shutting down the mortgage business, but his boss threatens to sack him on the spot. He suggests cutting back, but his boss counters that his competitors are expanding and his best people would be poached. He mentions hedging the risk, but his boss retorts that in the next two years that will cost hundreds of millions of dollars in lost profits."

The Economist goes on to point out that the risk officer's analysis would be hard for all but partnerships and private companies. Perhaps that is where the best risk management will come from in future.

Friday, 23 January 2009

Recession - Depression

Depression is a disease which has its own risk indicators. One of them is stress and another is unreasonable perfectionsim. As a result commercial lawyers are particularly at risk.

Matthew Johnstone, who suffers from depression himself, has written and illustrated two books on the subject - "I had a black Dog" and Living with a Black Dog" - which give immediate insights into the condition.

Wednesday, 21 January 2009

Let us now praise famous men

Tomorrow, January 22nd is Peter L. Bernstein's 90th birthday.

Peter is the doyen of writers on risk. His book ," Against the Gods" the remarkable story of risk, published in 1996 is the best on the subject. If you haven't read it yet then you should,whether or not you are in financial services. Towards the end he makes the following observation;

"Finally, the science of risk management sometimes creates new risks even as it brings the old risks under control. Our faith in risk management encourages us to take risks we would not otherwise take. On most counts that is beneficial, but we must be wary of of adding to the amount of risk in the system.... Derivative financial instruments designed as hedges have tempted investors to transform them into speculative vehicles with sleigh-rides for payoffs and involving risks that no corporate risk manager should contemplate."

Happy Birthday Peter.

Monday, 19 January 2009

Tomorrow is another day

One of the greatest difficulties a CEO can face is inheriting a company with a morally flawed model, a model which requires chicanery and exploitation to derive a signficant proportion of its profits.

It is well nigh impossible when things seem to be successful for the CEO to change the business model to one which no longer has the dishonest profitable thread running through it. Colleagues will not be persuaded as it affects their bonuses nor will the majority of the shareholders .

It is only when outside forces, what the Japanese call gai-atsu( foreign pressure), become strong enough that change can take place. Such was the case of the insurance broking industry when Eliot Spitzer confronted them over undisclosed commissions, such is the case of the banks with the unravelling of their subprime mortgage investments as the credit crunch unpicks their trust.

Even more pertinently Lincoln's election as US President and his refusal to sanction slavery put the entire Southern States economy, responsible for 57% of exports from the USA, into a position where the business model could only be preserved through secession. The economy based on slavery has been incomparably the most expensive in human lives and wealth to eradicate.

Monday, 12 January 2009

It fell off the back of a lorry

One of the issues being brought to light by the reporting on the alleged Madoff fraud is that some of the investors recognised that the returns were too good to be true, but rationalised their continued participation on the grounds that Madoff was probably using insider dealing ( illegal of course) to achieve them. Rather akin to buying luxury goods which might have been stolen and then discovering they were fake.

Monday, 5 January 2009

WANTED - Risk Manager for 2009

  • Able to walk on water when taking off on a new project.
  • Works hard to get traction whilst appearing calm on the surface.
  • Ability to dive into murky details essential.
  • Own carbon neutral transport a plus.
  • Suitably equipped to deal summarily with plagues of black swans.
  • Resolute - never ducks risk.
May you make 2009 what you want of it.

David Gamble
Risk Publishing Online