Risk = Probability X Consequences. Really?

“Wall Street thought it had risk all figured out…” should read that they figured out a marketing message given kudos by the number of Phd’s, MBA’s etc. employed by organisations whose appetite for individual/collective wealth and power was enabled by regulatory and credit (rating) regimes that suited the aspirations of politicians ALL at the expense of their citizens (customers) i.e. those that give them the means to function.

Their own greed and inability to continue to control information that exposed it, has been their undoing. Access to INFORMATION has enhanced our knowledge to such an extent that we have been able to recognise the MISINFORMATION that was presented as ‘knowledge and expertise’.

They created and profited from a volitile financial environment that, once globally interconnected, is beyond their control but, for as long as profits can be privatised and losses socialised, they will not suffer…until what has been ‘hidden in plain view’ can no longer be tolerated or sustained.

Time is nearly up.

Ontonix QCM Blog

Nik-Wallenda-tightroping-over-Niagara-Falls-1cv324b (image from www.impactlab.net )

Probably the most frequently used definition of risk is this one:

Risk = the Probability of something happening X resulting Cost/Consequences

This definition is flawed because of two fundamental reasons, which the formula itself suggests very eloquently:

1. Estimation of probabilities of future events is very difficult (while it is considerably easier when talking of past events). Rare events have very low probabilities and these are extremely difficult to estimate due to the fact that the sample of available data is very small (what is the probability of an event similar to 9/11?). Since this factor multiplies the “cost” in the above equation it is of paramount importance.

2. Estimation of the costs/consequences of these events. This is most difficult. Even after a catastrophic event it is difficult to estimate the total damage and cost.

However, the most important flaw is hidden and it is conceptual…

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The End Of Britain:: The downward slide has begun

Britain is about to be flattened by a tidal wave of debt. It doesn’t matter if you vote Conservative, Liberal, Labour, UKIP – or for no party at all. The facts are the facts.

Let’s take a look at some numbers…

Two and a half years ago, when the Coalition government formed, we were already in a huge amount of debt. In fact, the previous government had left the country sinking under £700 billion’s worth. Take a look at the following chart:


Source: ukpublicspending.co.uk Read more of this post

Andy Haldane:: Have we solved ‘too big to fail’?

If you still care about the role of Central Banks (you should, although it may not change much!) a guy like Andy Haldane is ALWAYS worth listening to. Here is his latest contribution…

As with systemic surcharges, the issue here is not to so much the bail-in principle, but its application in practice. Bail-in, whether of big banks, sovereigns or companies, faces an acute time-consistency problem. Policymakers face a trade-off between placing losses on a narrow set of tax-payers today (bail-in) or spreading that risk across a wider set of tax-payers today and tomorrow (bail-out).

A risk-averse, tax-smoothing government may tend towards the latter path – and historically has almost always done so, most notably in response to the present financial crisis. Next time may of course be different…

Have we solved ‘too big to fail’? | vox.

AH appeared in front of the Parliamentary Commission on Banking Standards (video) in November 2012. At the time I was prompted to explain my views on the subject of "ring-fencing"…

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Fact or fabrication?:: Iran Attacks US Banks

The seal of the U.S. National Security Agency....

I am not anti-American nor am I given to looking for conspiracy theories BUT, wait a minute, what is that smell?

Can YOU smell it too? It smells like bullshit to me and “ticks so many boxes” that it looks like a lovingly crafted plot worthy of Hollywood. If you are a movie director or warmonger it wouldn’t work just quite so well if the alleged attacker were a non-Islamic country, particularly a powerful one like China, whose track record of cyber attacks on US isn’t great!

So here’s why I’m getting that whiff of BS.

The denial of service attacks now afflicting American banks are widely attributed to Iran. They’ve grown so serious that US banks have asked the National Security Agency for help.

via The Volokh Conspiracy » Iran Attacks US Banks; Privacy Groups Attack … NSA? Read more of this post

Why not “constructive transparency”?

I recently came across a very interesting article that brought to my attention a phrase I hadn’t come across before: constructive ambiguity.

Isn’t that an oxymoron???

The article is here and it touches upon a topic and writers I have written about before in relation to business as war. If you like you economics with a social conscience and a philosophical perspective Ashwin’s your man.

“The interaction between the market participants, and for that matter between the market participants and the regulators, is not a game, but a war.”

Rick Bookstaber

However, in this article ‘constructive ambiguity’ was being used in terms of preventing moral hazard within a regulatory regime.

That’s when it struck me! Why not constructive transparency?


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