Deus Ex Macchiato has some fun with the Rumsfeld quote about "known knowns" and "unknown unknows," proposing that there is yet another variation: "the things that we are too lazy to know."
The largest institutions face feeble economic growth, a moribund housing market, chronically high unemployment, regulatory uncertainty and low rates as far as the eye can see. How will they make money?
Historically, regulators and bankers would have made a strong case that this kind of supervisory effort, however important, should absolutely be kept private.
Frivolously adding armor to combat planes makes the aircraft difficult to control and less effective. Weighting down banks with ill-conceived risk mitigation strategies and regulations serves the interests of neither individual banks nor the banking system as a whole.
A Chief Risk Officer can now have significant stature and sway. But that new prominence gives shareholders, regulators, and the media an easy target for ridicule after a corporate stumble.
A recent Los Angeles Times story, though a masterpiece of illogic, illustrates how unsound lending and loan administration naturally culminate in destructive servicing decisions.
Making banks show the rigor of their analysis through what-if exercises is all well and good. But investors would be better served if auditors had to tell more about the risks their clients are taking.
Fair value measurements marked to internal models may satisfy auditors and regulators. But investors demand independent valuations of thinly traded securities to eliminate any appearance of conflicts of interest.
