Thursday, March 4, 2010

A glimpse into the corridors of financial power

A good read from Vanity Fair....Larry Fink's $12 trillion shadow.

Excerpt that I found particularly interesting:

He now says he lost money at First Boston because no one really understood the risks involved. The computer systems were inadequate, and so were the programs that measured the impact of key variables such as changes in interest rates. “We built this giant machine, and it was making a lot of money—until it didn’t,” Fink says. “We didn’t know why we were making so much money. We didn’t have the risk tools to understand that risk. It’s what I tell everybody today: you should analyze your portfolio just as much when you are making money, because you could be taking on too much risk.”

Seared by his fall from grace at First Boston, Fink vowed never again to be in a position where he did not fully understand the risks he was taking in the market. What Fink had also come to see during his years at First Boston was how little his clients—pension funds, corporations, state and local governments—understood about the risks they were taking. Indeed, he says they were almost completely dependent on Wall Street firms to measure their risk—which was something, he knew from experience, that Wall Street did poorly. And so he decided to build a company that would not only invest money for clients but offer them sophisticated risk management too.

Worth taking the time to read the whole thing.

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1 comment:

Suzan said...

And thus the "new" substructure for taking "mark's" money comes into being.

From a billionaire who just "didn't understand the risks."

The smart guys (who devised the unregulated system - and worked so hard to get rid of the regulations in the first place) just didn't know what they were doing.

Right.

Funny how they survive to rule in a new day, isn't it?

Dream on.

S

And so he decided to build a company that would not only invest money for clients but offer them sophisticated risk management too.
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