.... Perhaps.
What are the causes of the financial failure across the planet? Relying on outliers like Credit Rating Companies to assess risk in the financial services sector is a recurring observation made by regulators. See Eric Dash and Julie Creswell, "Citigroup Pays For a Rush to Risk/Bank Saw no Red Flags Even as it Made Bolder Bets" p. 1, col. 2 (New York Times Nat'l Ed., Sunday, November 23, 2008).
Large commercial banks and large Insurance Groups and Insurance Companies hold themselves out as specialists in rating risks. They tell their potential and existing customrers that they are experts in risk management. The current head of the Office of the Comptroller of the Currency, has this to say: "'There is really no excuse for institutions that specialize in credit risk assessment, like large commercial banks, to rely solely on credit ratings in assessing credit risk.'" John C. Dugan, quoted in id.
Self-interest management replaced risk management, it seems clear. Another quote in the linked newspaper report comes from an anonymous source who reportedly worked with Collateralized Debt Obligations at Citigroup: "'I just think senior managers got addicted to the revenues and arrogant about the risks they were running. As long as you could grow revenues, you could keep your bonus growing."
Drawing from the comprehensive linked newspaper article, here are some of the reported behaviors in the financial services sector in recent years that have not matched settled principles of risk managment:
Allowing or overlooking, and in any case ignoring, potential conflicts of interest on the part of the risk managers;
Apparent lack of independence of the risk managers from the marketers or traders;
Instructions from superiors of both risk managers and sales persons to increase marketing of financial instruments that may become profitable in the short term but never become well known except in the long term, such as collateralized debt obligations or C.D.O.'s;
Lack of clear lines of reporting, such that risk managers report to a person who is in charge of the people marketing or trading the same products that the risk managers are supposed to keep an eye on.
A related post can be found on www.insuranceclaimsbadfaith.typepad.com.
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