Risk-Management Expert Warns of Second Financial Collapse
In his new book, The Doom Loop in the Financial Sector and Other Black Holes of Risk published by the University of Ottawa Press, William Leiss tells an important story about uncontrolled risk, set against the backdrop of the global financial crisis.
In September 2008, the core of the world’s banking system teetered on the brink of a complete meltdown. The collapse was triggered by the downfall of the investment bank Lehman Brothers, which set in motion a cascade of bankruptcies that was halted only by the infusion of colossal sums of money by virtually every major government in the developed world.
Evidence suggests that the private-sector titans of finance were clueless to the systemic risks that had been introduced into the marketplace. Leiss’ analysis of the lead-up to the crisis reveals the practices that brought about the collapse and how it became common to use limited risk assessments as a justification to gamble huge sums of money on unsound economic policies.
The author proposes a simple three-step program to prevent disasters of this kind from reoccurring. According to Leiss, the first step is understanding that there are some risks not worth taking, and that there can be dire consequences if you do.
“The important thing to realise” he says “is that the financial crisis isn’t over – the problem hasn’t been fixed. There is still no risk management framework in place [for the global banking and financial sector,] and unless this deficiency is remedied, a similar event will very likely happen again. Except that the next time it happens, governments will not have the financial resources needed to revive it.”
William Leiss is a nationally recognized risk management expert, and Associate-Director at the McLaughlin Center for Population Health Risk Assessment. He is a Fellow and former President of the Royal Society of Canada, and an Officer in the Order of Canada. He has written or edited over 15 books, including Risk and Responsibility (McGill Queen’s, 1994) Mad Cows and Mother’s Milk (McGill Queen’s, 2004) and In the Chambers or Risks (McGill Queen’s, 2001).