? Will Wall Street ever learn? | Home
By Lauren | May 17, 2012
As the story at JPMorgan Chase continues to unfold, I?m increasingly struck by how badly the bank?s sophisticated investment gurus seem to have underestimated the risks associated with their losing trades. $2 billion is a sizeable chunk of change even in the investment world, and one has to go out of one?s way to lose that much money in a hurry. JPMorgan?s investment team obviously thought the returns would be worth the risk, and they were just as obviously wrong. Maybe it?s time they tried something different and hired some actuaries.
Having worked with them for many years, I have tremendous respect for the skills that actuaries bring to the table. Actuaries devote their careers to quantifying and managing financial and other risks, usually for insurance companies and pension plans. They use different mathematical models than the financial wizards of Wall Street and might well have had a different perspective on just how risky the JPMorgan trades were. That?s not why I think investment banks should make use of actuaries? talents, however. What the actuarial profession can offer, and what Wall Street seems to me desperately to need, are rigorous standards of conduct and practice that are enforced by its membership organizations. Actuaries recognize that their work involves a tremendous amount of public trust and they safeguard that trust by establishing standards for how their work should be done and disciplining the (admittedly very rare) actuary who acts unprofessionally. Taking the good reputation of their profession very seriously, actuaries work hard to protect it.
Actuaries tend to be cautious and may seem like worrywarts to more adventurous types like investment bankers. If JP Morgan?s investors had been required to explain what they were doing to skeptical actuaries, though, the bank might be $2 billion more profitable today. Wall Street needs to do a better job of regulating its own behavior - the actuarial profession could be just the people to demonstrate how that?s done.
Topics: Business Ethics, Corporate Governance, For Actuaries, Lauren Recommends, Risk Management, Social Ethics, corporate responsibility, ethics |
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