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Written by José D. Roncal
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Monday, 15 June 2009 14:08 |
It's a generally accepted fact that to be successful, you have to be willing to take risks. When you consider the practices of contemporary entrepreneurs like Sir Richard Branson, Frederick A. Smith, or Donald Trump, to name a few, it's hard to argue with the fact that these high-rolling risk-takers have not only realized success, they've also contributed to the economy by creating countless jobs for others.
But in today's dire financial situation, the very concept of risk-taking is taking a major beating. Who is responsible for this disaster? Was anybody minding the store? What happened to the practice of enterprise risk management (ERM)? Everybody is anxious to point fingers at somebody else, but no need to crowd folks; there's plenty of blame to go around.
With so many companies going belly up, it might appear that ERM has failed us. But we think the current financial crisis did not result from a failure of ERM, but a rather failure to properly implement the ERM process.
I've had years of experience in directing corporate turnarounds and can remember a time when Specialist Forecasting was straightforward. By the end of the first quarter, managers usually had a reasonably reliable sense of how the business was doing and whether targets were going to be met, missed or exceeded.
These were the numbers that ruled the markets. Investors placed such a high level of confidence in quarterly and annual predictions, if the numbers were off just a few points above or below projections, it was enough to create huge moves in the stock value. This year, however, things have changed. Suddenly the act of announcing projections has become a risky business, and some companies are not making any predictions about their future performance.
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Written by José D. Roncal
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Monday, 01 June 2009 01:23 |
Our current economic crisis is so deep and complex it's not likely to right itself anytime soon. How do we work ourselves out of this hole? Do we need more regulation or less? This is a question that has banks and Wall Street up in arms and one that is plaguing economists and the Washington elite.
We are dealing with a three-pronged problem: a housing market that bottomed out as the housing bubble burst; a credit crisis, the worst we've seen in decades; and now a decline in demand for goods and services and capital investment. Yes, there has been a slight deceleration in the rate of economic decline, but we'd much prefer to be reporting something a bit more optimistic—such as a better-than-slight acceleration.
Few would argue with the fact that things began to unravel at the bursting of the housing bubble, but when you consider the question of whether or not regulation might have prevented this, we have to pause and recognize that markets are inherently bubble-prone.
It's simple; markets create bubbles. If you need more evidence of this fact, just read our book, "The Big Gamble: Are You Investing or Speculating?" We've written several chapters on the subject of bubbles, citing some of the most notorious bubble fiascos throughout time. We also outline the warning signs for spotting a bubble in the making and suggest how you can either avoid it or go along for the ride, reap the rewards, and get out before things go awry.
So, if markets create bubbles, would closer scrutiny and stricter regulation prevent such chaos in the future? Who is in charge? Is some higher governmental agency supposed to accept responsibility for preventing asset bubbles from growing too big . . say, like the Office of Market Bubble Prevention? Government agencies have been quick to defend themselves against blame by saying that if the markets can't recognize what's coming, how can the regulators be expected to? And, of course, they have a point.
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