Irresponsible investments across the nations and industries have brought the global community facing debilitating choices today… Quick money and profit making has crossed the boundaries of human decency, personal responsibilities and accountability.There is a disconnect of great proportions among the decision makers across the nations and industries.
•Do you think irresponsible investors and investment has something to do with the global crisis?
•Do you think Risk Centric Audit should be mandatory for any investment?
•Do you think your nation and its industries have the capability to understand the investment risks in the globalizing economies?
Let me know your thoughts. Please specify which nation you are addressing.
Jayshree Pandya PhD
Global Risk Advisor
#1 by drjsr52 on April 17th, 2009 - 10:13 am
U.S.A.
Dr. Pandya,
Do you have the article I wrote in 2003 for your risk newsletter, “Expert Judgment_ The NO Risk Proposition?”
I see the exact same conditions in the current financial situation. The Houston Chronicle had an editorial by the Dean of the Business School at University of Houston – Downtown that places a large share of the blame on business schools. What’s your opinion?
#2 by raylinds on March 27th, 2009 - 11:40 am
I am responding from the U.S.-
Question 1:
Irresponsible investing played a significant role in this crisis. In addition to eradicating wealth, irresponsible investing allows for the proliferation of inferior and improperly priced investment vehicles. extreme pools of liuidity in government sovereign funds in countries like China and the large global financial institutions were chasing incremental yield gains over treasuries.This led them to purchase huge amounts of collateralized debt obligations, forcing their yield spread over treasuries to become razor thin (thus, they weren’t even adequetely compensated for their incremental risk). Although the rating agencies gave most of these securities AAA rating, and CDOs were considered safe investments, the assumptions behind this risk assesments were fallacious. It was believed that:
1. Lenders were performing careful underwriting on their borrowers.
2. The firms issuing the CDOs were performing due diligence on the mortgages.
3. Geographic diversification of the pools of mortgages would mitigate the risk of widespread foreclosures.
4. Home prices would continue to rise.
5. The rating agencies fully understood the products, and had accurate models for assessing their risk.
Nothing could be further from the truth.
Despite the widespread understanding that the rating agency model has confilcts of interest, too many investors blindly followed their ratings. Agency ratings should never replace a thorough due diligence process.
Question 2:
I do believe that, in addition to an initial due diligence, Risk Centric Audits should be performed on a regular basis, as global economic conditions change.
Question 3:
I think there are pockets of understanding of global investment risks in the U.S., but it is not widespread. This situation must change.
http://www.FinancialServicesIssues.com