You Said What About Risk?
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World business glitterati leave Davos, Switzerland with a renewed vigor to tackle problems du jour. Not surprisingly, those who attended the World Economic Forum had plenty to say about financial markets and risk.
According to Clara Ferreira-Marques and Sue Thomas of Reuters, Raymond McDaniel, Chairman and CEO of Moody's, declared that "A lot of things could have been done better - some are the responsibility of rating agencies, some of other participants in the market." Guillermo Ortiz, Governor of the Central Bank of Mexico, urged more transparency. "The complexity of the products and financial innovation made it more difficult -- even the regulators failed to understand. It was an exercise in collective confusion."
For those who stayed home, a trip to the conference website is telling. Part of a panel about financial markets, Dominique Strauss-Kahn, Managing Director of the International Monetary Fund, described "low interest rates, high liquidity, a breakdown in credit and risk management practices, and a shortcoming in US financial regulation and supervision" as culprits. Central bankers concluded that the "causes behind the latest financial crisis were complex" with "some time before regulators and market players can fully grasp what went wrong." A session moderated by CNBC's Maria Bartiromo (who interviewed me about pension investing on June 14, 2007) included a comment by Walter Kielholz, Chairman of the Board of Directors, Credit Suisse about the struggle for banks to generate returns even though "for four to five years, financial institutions have believed there is too much of an appetite for risk in the market."
Here are a few of my favorite "you don't say" quotes about risk.
- “The only perfect hedge is in a Japanese garden.” (Gene Rotberg, former treasurer, World Bank)
- “Due to my inexperience, I placed a great deal of reliance on the advice of market professionals…" (Robert Citron, former treasurer, Orange County, California)
- "There is no such thing as a free lunch." (Milton Friedman, Nobel Prize winning economist and author)
If you know of any interesting statements about financial risk (including those which defy rational belief), we'd love to receive them. Similarly, it would be great to get your feedback about the role of regulation. Do we need more rules to govern investing? Click here to send us an email.
