Risk Management: Who Ya' Gonna Call?
11/5/2008 12:50 PM EST
I was asked by a reporter to provide my opinion of the New York Federal Reserve's hiring of former Bear Stearns risk officer Michael Alix.
It would be easy to take the obvious cheap shot, but I came to the defense of the decision. First, there are two departments in any financial organizaiton, risk management and compliance, where the primary job is to say, "No." Those departments tend to get pushed around by the primary money-making departments, such as sales, trading, underwriting and product structuring when the times are good.
Second, just as Brinks hires former safecrackers, or as Franklin Roosevelt hired Joe Kennedy to run the SEC and as Lenin hired the Czarist secret police, you often have to hire people who have been involved in something dubious. Wasn't one of our mistakes in Iraq dismissing all former Baathists; who else knew how to run things there? I'd rather hire someone who saw the disaster unfold from the inside and knew the story than someone from, say, academic who is up-to-snuff on the latest risk management theories but never faced live ammunition.
The Federal Reserve has a huge portfolio of dubious collateral on its balance sheet as the result of all its recent actions. You need someone experienced with all that dreck to manage it.
Besides, would you rather have someone from Lehman Brothers, WaMu, Wachovia, AIG, IndyMac running the show?