The Financial Mess

Every business decision involves risk. With every business decision there are those who understand the risk, those who don’t understand the risk and those that aren’t even aware there is a risk!

Most business risks are fairly modest, but some aren't. Risks have two elements. The probability it will occur and the effect if it does occur. Rarely does it make sense to risk something with both a high probability of occurance and a catastrophic effect. Yet, amazingly, that appears to be precisely what the bright lights in the financial industry have done. Why? My bet is for a short term benefit.

Guess who usually gets screwed when a risk does result in a catastrophe and guess who rarely if ever gets screwed?

If life were fair those that understood the risk, yet choose to proceed anyway, would be the ones to pay the price when things go bottoms up. Unfortunately those are the only people in a position to insulate themselves and they’re usually pretty good at doing so.

The folks that take it on the chin are the other two groups because neither realized there was a potential storm on the horizon and I suspect that’s exactly what’s going to happen in the current financial mess.

I have three questions that no one seems inclined to answer.

Question #1 – Exactly how did we get into this mess?

No, I’m not looking for the trivial answer about high risk mortgage lending practices. What I would like to understand is why banks, traditionally the epitome of conservative stuffed shirtism, suddenly decided that high risk loans to people, who clearly weren’t going to be able to pay them back, was a good idea.

Allow me to suggest that end year bonuses figure in there somewhere. Nirvana in the business world is if you can find a way to reap the rewards while someone else shoulders the risk.

Question #2 – How are we going to insure that the assholes that made the decisions that got us into this mess get nailed rather than rewarded?

Yeah, I know, it’s not going to happen. These are precisely the guys that understood the risk and managed to insulate themselves. Probably a lot of them fled for greener pastures a long time ago. I can envision them clutching their ill gotten gains as they slink off into the night.

Question #3 – How are we going to make damn sure it never happens again?

This is sort of a key point to my mind. Fool me once, shame on you; fool me twice, shame on me. I’ve heard a lot about preventing looming catastrophe but little about making damn sure it doesn’t happen again.

What is so infuriating about this mess is the realization that the turkeys that caused it are most likely sipping Pena Colladas on their yachts, having long ago gotten out of harms way, and there isn’t a damn thing anyone can do about it.