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Politics : GOPwinger Lies/Distortions/Omissions/Perversions of Truth -- Ignore unavailable to you. Want to Upgrade?

To: TimF who wrote (146080)	11/6/2008 8:16:27 PM
From: geode00	Read Replies (1) \| Respond to of 173976

Studies of last year's events have concluded that part of the reason that the problems with subprime and alt-A mortgages led to much wider financial market turmoil was weaknesses in the risk-management practices at some large global financial firms that created and held complex credit products. Recent events have highlighted the need for risk-management improvements in four fundamental areas: risk identification and measurement, liquidity risk management, governance and risk control, and valuation practices. First, for risk identification and measurement, as all of you here know, good information is the lifeblood of sound risk management. A good risk-management structure is designed to identify the full spectrum of risks across the entire firm, gathering and processing information on an enterprise-wide basis in real time. In short, you cannot manage your risks if you do not know what they are. Recent events have illustrated that many large, complex institutions had exposures to subprime mortgages that ran across independent business lines, through off-balance-sheet conduits such as structured investment vehicles, and with respect to numerous counterparties such as monoline financial guarantors. But too few institutions fully recognized their aggregate exposure to risks that turned out to be highly correlated. Latent risks from certain complex products and certain risky activities are particularly problematic because they can manifest themselves when market turbulence sets in. Stress testing and scenario analysis are essential because they can reveal potential risk concentrations that may not be apparent when using information gleaned from normal times. The second fundamental area is liquidity risk management. Because of its central role in the business of banking, liquidity risk requires rigorous and effective management. Recent events have shown that during times of systemwide stress, liquidity shocks can become correlated, so that the same factors that can lead to liquidity problems for the bank's assets or off-balance-sheet vehicles can simultaneously put pressure on a bank's own funding liquidity. Because risk concentrations have the potential to manifest themselves during times of stress and at that time adversely affect capital positions, it is particularly important that firms assess how liquidity events could place pressure on capital levels. The third fundamental, governance and risk control, has been a key factor that has differentiated performance across financial institutions during the recent turmoil. Firms that operated with the two main ingredients for solid governance and controls--thorough information and strong incentives--have come through this tumultuous period in better condition. federalreserve.gov Not every financial firm is caught up in this mess to the extent that Lehman or AIG are. Do the capital requirements you cited even apply to investment banking? I thought Lehman was up to 1-to-30 or more in leverage. GS is still standing - sort of while Lehman is gone. They were in the same business facing the same regulation so it isn't just regulation. You can't blame everything on the government especially as these institutions control a significant part of the legislative and executive branches through campaign contributions and lobbying.