One recurring theme from the analysis of losses made in the
financial sector is that the Management were totally unaware of the risks which
their institutions were running.
To be effective, risk management and risk controls rely on
the people operating them.
As has been well documented all too often the corporate
culture is dominated by fear and greed and these together make for a toxic
combination.
When strategies fail and trading positions spiral out of
control these two elements come very much to the fore. Fear can often lead to
individuals embarking on an even more reckless course of action in the
misguided belief that it will all come right – the gambler’s doubling up
mentality.
At the same time recklessness is often driven by greed; the
larger the risk the greater the reward should it prove to be a successful
course of action.
Against this background it is incumbent on the Management to
ask the uncomfortable questions and not merely rely on the assurance that all
is well and going to plan.
It is always worth remembering that if something looks too
good to be true it invariably is.
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