Risk Rap

Rapping About a World at Risk

In Memoriam: Virginia Tech

Yesterday marked the first anniversary of the horrible mass murder of innocents at Virginia Tech University. We extend our condolences and prayers to the friends, families and communities that were affected by this terrible event. One year on, the wounds and sorrows of those who remain are still real, raw and in the process of healing. We continue to extend our hopes and wishes for their continued recovery.

One year on we continue to seek for answers about what in the American cultural DNA produces the type of behavior bent on a theatrical display of institutional fratricide and suicidal self destruction. Though the Virginia Tech tragedy could be considered a “fat tail” type event, our country has experienced the nightmare annihilation of innocents before at Columbine and the Amish One Room Schoolhouse at West Nickel Mines.

As risk managers we are called to uncover and examine clues, patterns and causal triggers that lead to these types of extreme events with the hope that they can be averted. Thus we ask, what factors in our cultural environment contribute to these social disasters?

Many factors that influence and produce this type of behavior have been offered. They include the idolatry of violence and aggressive behavior, the availability of guns, poor funding to treat mental and emotional illness, fractured families, the erosion of our moral values and ambivalence toward the sanctity of life. To be sure no hard quantitative data and statistical algorithms can model a high degree of correlation between the absence of these social support mechanisms and the resulting extreme anti-social behavior exhibited in these events. Though no beta can be calculated we can infer that the absence of community and social support resources are inextricably linked to anti-social behaviors.

We believe that these types of events will continue with increasing regularity until we attack the problem at its root and proscribe some strong social medicine to cure this illness. As risk managers we understand that risk events are costly. Virginia Tech and other institutions suffered monetary loss as a result of this event but the real cost is measured in breakdown of institutional trust, broken hearts, vengeful spirits and cultural decay. The social profit and loss statement could start to incur some real losses as war veterans begin returning from their protracted terms of service in Afghanistan and Iraq. The reality of what they experienced and the conditions they endured will require a generous social safety net to reacclimatize them to our societal norms.

If anything gives us reason to hope is the example of how the Amish Community healed itself by forgiving the trespasser. This radical reconciliation is an affirmation of their community values and their unshakable faith in a love supreme. May all the departed and those who remain continue to be joined through this love.

Risk: Social, Institutional, Culture, Family, Religion

You Tube Video: Branford Marsalis , A Love Supreme

April 17, 2008 Posted by | community, culture | , , , , , , , | Leave a comment

Three Legged Stool

During our last recession back in 2002, I attended a prime brokerage conference at Credit Suisse First Boston (CSFB). A senior economist for the firm gave a presentation on the economic outlook for the coming year. The economist explained that the US economy is like a three legged stool. In his analogy, each leg of the stool representing different demand drivers for the economy.

The first leg represented government spending. The economist suggested that due to the balanced budget amendment and a federal commitment to tax cuts government spending would be curtailed so we cannot expect this segment to lead the recovery.

The second leg of the stool was corporate spending and since earnings growth had dramatically slowed CSFB indicated that we cannot count on corporate spending to lead us out of the recession.

The last leg of the stool was consumer spending. The economist indicated that the American consumer was still a vibrant demand driver due to the rise in the value of their real estate holdings and the potential to unlock the equity within their homes. Consumer spending played an important role in leading the US economy out of the last recession. But the depletion of home equity has exhausted the resource of consumer spending as a leading driver of demand and we cannot expect a consumer led recovery to get us out of the current recession.

Evidence of the slowing consumer spending is reflected in stagnant growth of retail sales as reported by Haver Analytics in its report for March. So it is with great trepidation that we greet Goldman Sachs’ announcement that corporate earnings will be “awful” .

During the last recession the CSFB economist did not foresee an accommodationist Fed policy that unleashed a Tsunami of cheap credit and a mammoth off balance sheet spending spree to fund the war in Iraq.

So the question of what will drive economic growth to lead us out of the current recession? Cheap credit is creating global inflation pressures and stoking friction between the worlds central bankers and is a contributing factor in the Rice Crisis.

What role will government spending play in leading us out of the current recession?

Will we witness further off balance sheet expenditures to fund a retooling of our depleted military and some much needed investment in our corroding national infrastructure?

Risk: Inflation, Credit, Market, Military Spending, Social, Corporate Earnings, Recession

You Tube Video: Guffman Stool

April 17, 2008 Posted by | credit crisis, economics, infrastructure | , , | Leave a comment