Personnel Responsibility

Where were they?

Everyone wants to know where the risk managers were. Where were the regulators? Where were the rating agencies? Where were the internal controls when all this sub-prime debt was inflating a real-estate bubble?

One of the answers is that they were right there, but nobody was listening–in part because of a culture where successful traders and loan originators get paid seven to fifteen times what a risk manager gets paid. And for the most part it seemed like they were worth it: the sales people put bread on the table. The risk managers just made the auditors happy. One was a revenue center; one was a cost center. You can guess who got the free Red Sox tickets.

Think of it as the jocks versus the geeks. No one listens to the geeks when they tell the jocks not to play chicken with the Principal’s car. Until there’s a crack-up.

Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!

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