The science gave me a quiet satisfaction and sense of ease when I thought of the undeniable logic and common sense behind it.
I enjoyed that we as humans were referred to generically as homo sapiens and that we must humbly share our existence with other live creatures such as dogs and consider them just as important.
Our need and competition for food, water, shelter and sleep are shared, although I will admit my dog always won on the latter. We learned the effects of excesses and shortages of organisms and that tampering with this sensitive balance was never a good idea and life without competition or diversity ceases to be life. These are the fundamental rules for our planet. These are the theories of natural selection and the survival of the fittest.
A recession, according to one widely held definition, is "a decline in a country's gross domestic product for two or more successive quarters of a year." There are diverse philosophies on how to control the risk of a recession and we have debated many of them passionately during this recent presidential campaign and election process.
Keynesian economists support government surplus spending to stimulate growth (Obama), populist economists endorse consumer benefits such as subsidies or tax reductions to alleviate recession suffering (Obama), supply-side economists advocate tax cuts to promote business capital investment (McCain) and the laissez-faire economists simply suggest that no one interfere with natural market forces (McCain ... sort of). Who is right? Which leader was on to the right risk management track?
To me 2008 will be renamed "The Year of the Bailout" and justified by Keynesian economic doctrine. Prior to this, my vision of a successful bailout was me holding a bucket in a boat that had sprung a leak. I use this mitigation technique to save myself from sinking with the deliberate and measurable action of scooping water and pouring it over the side.
But here is the problem. What the Feds have done so far with Troubled Assets Relief Program and other "charitable donations" is only plug the leak ever so slightly. It hasn't fundamentally altered the risk landscape. So much capital has been thrown into the system, but has it remotely plugged the leak? Is it going to create the liquidity the system so desperately needs? Is the bucket too small? Is the leak too big? Are we bailing the wrong boat? Is this the right risk control?
In keeping with laissez-faire economic philosophy or, in my view, "economic ecology," maybe we should do nothing at all. As harsh as it seems, maybe we should let this ship sink and witness the preservation of the favored in the struggle for life. If this were the Serengeti and a severe life threatening drought prevailed ...
A full restructuring of our banking system may be just the ticket. Let banks get smaller, let some go away, let banks consolidate and let new banks to be created with clean balance sheets and current forward looking underwriting information. The question is: will our risk controlling culture allow us to muster the courage and fortitude to allow for natural selection so that the next generation can become stronger and healthier?
JOANNA MAKOMASKI, the former risk manager for a global energy company, is a leading specialist in innovative enterprise risk management methods and implementation techniques for ERM Quickstart.
January 1, 2009
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