Do you think a robust business continuity and recovery plan could have saved the current financial crisis in US?
Do you think a robust BCRP could have diverted the the financial crisis for Freddie Mac, Fannie Mae, Lehman Brothers, Washington Mutual, and similar companies. Does BCRP also include major risk assessment and does it help plan to overcome such risks? or is the scope of the BCRP limited?
Good Answers (20)
Short Answer: Yes.
Long Answer: Yes but first, acronym help? Boston Combined Residency Program?
Les D.
Software Quality Assurance Lead
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I suspect business continuity planning at the large firms mentioned did not include risks that have come to pass, and some that might have been raised like systematic fraud in the securities would have been said to have been covered by insurance and hedge options.
Note that business continuity is working in one sense, after take over of WaMu and bankruptcy dismemberment also,
Joyce M.
CURATing, CSSing and RSSing Alot of Stuff
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Shortest answer: No.
Curt C.
Assistant Research Professor at CMRR, UMN
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Sudarshan,
IMHO, Yes, and no. The whole point was that these risks were allowed by regulators...the gov. lenders and investment banks were operating in an environment of recent deregulation. In a way, the previous regulations were a BCRP, but externally mandated.
The deregulation occurred at the same time as innovation in the distribution of mortgage backed and other securities, with unknown (until now) risks....so was (all) the risk predictable?
The below commentator thinks not:
Links:
Sridhar Chakravarthi M.
Business consultant and Social Entrepreneur
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Dear Sudarshan,
Ideally yes. But the challenge is the way we understand BCP/ DR. It is referred to and understood by the CIO and people involved in Information Security and is rarely used elsewhere.
Even if we see the Business Risk Mgmt at large, which is the origin of BCP/ DR, it is neither understood nor implemented. The whole world goes by contingency.
And as Cust said, the crisis was allowed by regulation. Even here, the organization has to understand the regulatory risks involved and proceed.
I think the focus here is to question the business/ enterprise risk mgmt practice rather than DR/BCP, which in its current context is very much ristricted.
Successfully,
Flt.Lt.Sridhar
98490 77957
Barrie H.
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the people behind this mess largely those whom created these fraudulent securities should go to gaol for a long time strip their assets as disincentive to others-treat them like drug dealers.
I mean they have taken a loan instrument from basic home owners whom have no equity,poor job security,overvalued houses then sold the debt via a complex instrument to investors as a blue chip securities.
Its fraud they should all be taken away to gaol for 20yrs,and given the same treatment as child molesters after released.
Every business has risks. This Financial Business also had risks but nobody thought for Disaster Management by keeping "Disaster Funds". It's time to create this new fund for safety in emergency like this.
Cheers!
Chandrabhan
Lee S.
Microsoft Premier Field Engineer
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The problem here is that you have people who never cared about anything but themselves. If they were looking out for the good of the economy, they wouldn't have made the decisions they did in the first place.
Phil L.
Information Technology Manager/Consultant
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The rich and powerful are deaf.
Michael C. D.
Senior Supplier Contracts Manager at Flextronics
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In my opinion, no. BCPs do not usually examine problems of this kind. To me, the real problem is that without a fundamental change in the way these companies did business no BCP was going to save them. Example, for Freddie Mac to be saved, the BCP would identify sub prime mortgages as a serious risk and Freddie Mac would need to make the decision not to guarantee or buy any more sub prime mortgages and to try to divest some of its current portfolio. Unfortunately, doing so could very well trigger the financial crisis Freddie Mac wanted to avoid.
Lynn W.
virtualization since Jan68, online at home since Mar70
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so on one side there is:
Risk Management Failings Spur Big Financial IT Investments
http://www.informationweek.com/news/services/business/showArticle.jhtml?articleID=210603899
and on the other side there is:
How Wall Street Lied to Its Computers
http://bits.blogs.nytimes.com/2008/09/18/how-wall-streets-quants-lied-to-their-computers/
(posting to the above blog added some number of examples)
I've sporadically drawn the parallel between CDOs and obfuscating "observation" in Boyd's OODA-loops
http://www.garlic.com/~lynn/2008g.html#4 CDOs subverting Boyd's OODA-loop
... CDOs were used two decades ago in the S&L crisis to obfuscate underlying values and unload the properties.
This is long-winded, decade-old post about many of the current problems, including the need for visibility into CDO-like instruments:
http://www.garlic.com/~lynn/aepay3.htm#riskm
also ...
How Conventional CDO Analytics Missed the Mark
http://www.bobsguide.com/guide/news/2007/Dec/20/Kamakura_Releases_Study:_How_Conventional_CDO_Analytics_Missed_the_Mark.html
from (20Dec2007) above:
"Two years ago the Wall Street Journal in a page 1 story pointed out
the dangers in relying on the copula approach for CDO valuation, but
investors were slow to realize the magnitude of their model risk"
... snip ...
the above isn't inconsistent with claims that computerized risk was manipulated.
however, somewhat the other side (although again not necessarily inconsistent)
Subprime = Triple-A ratings? or 'How to Lie with Statistics'
http://www.bloggingstocks.com/2007/07/25/subprime-triple-a-ratings-or-how-to-lie-with-statistics/
Then there is (from last march) the following which includes mention that wall street took $137B out in bonuses during the period (reward for creating the current situation?, the proposed $700B would in part be used to replenish the amount taken out of the infrastructure by those bonuses):
The Fed's Too Easy on Wall Street
http://www.businessweek.com/investor/content/mar2008/pi20080318_697440.htm?chan=top+news_top+news+index_businessweek+exclusive
The GAO has started a database of the increasing numbers of financial restatements (despite SOX). Basically financial statements are inflated ... and bonuses for top executives taken based on the inflated statements. Later the numbers are restated, but the bonuses not forfeited. An example, Freddie was fined $400m in 2004 for $10B inflation in statements and the CEO replaced ... however, the CEO kept tens of (hundred?) millions.
Links:
- http://bits.blogs.nytimes.com/2008/09/18/how-wall-streets-quants-lied-to-th...
- http://www.garlic.com/~lynn/aepay3.htm#riskm
- http://www.bloggingstocks.com/2007/07/25/subprime-triple-a-ratings-or-how-t...
Clarification added September 28, 2008:
there was business school article last spring that estimated possibly 1000 executives are responsible for 80percent of the current crisis and that it would go a long way to fixing the situation if the gov. could figure out a way for them to loose their jobs.
Neil J.
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A BCRP is no defence from stupidity.
In the end it will be seen that stupidity was the root cause of these problems. In particular the lack of willingness to admit no-one understood what they were really doing, what the risks really were or what the consequences could really be.
Frank F.
►CEO/Bd Director ►IT Governance Advisor ►Future-Proof Strategy ►Keynotes ►Inno-Change ►Social Media Mktg ►China Advisor
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Lunatics and madmen (who created derivatives out of thin air) do not understand nor heed any plan. Neither do reckless lenders whose only goal was to build a giant ponzi scheme via derivatives that they somehow didn't think would ever collapse around their ears. The regulators had a plan, but they also lacked prudent discipline and so didn't follow the prescribed plan.
Bianca M.
n/a at
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Welcome to the real world!!!!!
Why is it when someone at the top commits a fraud a resque plan arrives to cover it?
The old saying goes like this "they fixed that way their bed and they should sleep in it!
I agree with Barrie Harrop, the whole thing started with a fraud!
Healing in anything in life comes by
*Exposing the problem,
*Face the problem,
*Deal with the problem,
and let healing flow by uprooting it from the roots!
Blessings
Bianca
Michael K.
Systems & Architecture at Hospira
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I think there is a little misunderstanding here. The current crisis has been predicted, calculated, foreseen and enforced. This happens because we, as a public, do not understand the meaning of taxation and how the capital markets operate. This is a public policy of the country which happened to exploit its special position (earned, of course!). It has nothing to do with business continuity and recovery, because no such measures will be capable to prevent a well planned and organized blow hitting simultaneously all components responsible for recovery. The only valid policies were: to stay aside, sacrifice immediate profits, slow growth, get fired for non-performance... Now, who likes the last component?
Boo Boon K.
Principal Consultant in Casino Gaming and Financial Services
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Dear Sudarshan,
Having a robust business continuity and recovery plan that could have saved the current financial crisis in US presupposes an understanding of the risks associated with new financial instruments and derivatives from the standpoints of issuers, intermediaries, buyers and regulators. The extent and severity of the current crisis shows very clearly that none of these players understood the underlying risks or were blinded to ask questions about the underlying risks of these financial instruments in their frenzy to make more money (fees and taxes in the case of regulators).None anticipate nor make any contingency plans to address such eventuality!
So my answer is a definite no.
KHOO BOO BOON
Chair/CEO,
GTF Worldwide Philippines Inc.
This Question and the Answers should get a Best of the Best!
Insightful question with Great answers. Kudos to you all!
All you great minds that have answered as of this time/ date please join me on linkedin: shucart@eastgate-llc.com
"and let us reason as men" no gender slight intended
Dot O.
Researcher. Author of the forthcoming book, “Profiting from Change: Uncommon Lessons of Adaptability and Profit..."
Great question. At the most basic level, standard operating procedures could have prevented this problem. When the risk became known (at least) two years ago a set of standards should have been voluntarily implemented to ensure that the people receiving new mortgage loans could make the future payments (for one example).
At that point, the banks could have gone back and re-examined the risky loans that were already in place, and they could have proactively worked toward providing consumers with products that were more appropriate for their financial situations, using existing or new products that also carried acceptable risks for the mortgage company.
I don’t mean to over-simplify, but accountability is under-rated and fixing the problems that you’ve caused seems to be out of style these days. There is a shortage of accountability in this situation to this day.
A business continuity and recovery plan works when the basic mechanics of an organization are functioning properly to some extent. Managing the risk that was created by lax underwriting rules would have had to have been done at the ground level, not through a high-level document.
Jesus K. L.
Certified Risk Manager
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Don't think so. A robust LOSS PREVENTION plan would, but BCRP limits its integrity and recovery possibilities if loss prevention measures are totally absent, as in this case.
Jesús
