Tuesday, October 07, 2008
Now They Tell Us
This is a good explanation of the risks built into complex derivatives. One wishes that Wall Street had understood it before the market meltdown. Instead, we are suffering a worldwide crisis that will affect the economy for months to come.
What went wrong? Assumption piled on assumption with neglect for the uncertainty contained in each. The developers of derivatives failed to appreciate the underlying facts of the risks involved and that risks are cumulative. The meltdown was in the details.
It is in the details where communications plans fail as well. A PR practitioner cannot afford to gloss over niggling facts that jeopardize the larger message one wants to send. Cynical media will latch onto them and take the story into another direction. Accepting a company's story is the first step in telling it accurately. If there are warts, one notes them but also points to offsetting factors that put warts into perspective. Reporters appreciate self-awareness. Too many executives lack it or hide behind an overly optimistic message. As one CEO says, facts are friendly. Had Wall Street's mathematicians understood that, the risks they took would have been better hedged.
What went wrong? Assumption piled on assumption with neglect for the uncertainty contained in each. The developers of derivatives failed to appreciate the underlying facts of the risks involved and that risks are cumulative. The meltdown was in the details.
It is in the details where communications plans fail as well. A PR practitioner cannot afford to gloss over niggling facts that jeopardize the larger message one wants to send. Cynical media will latch onto them and take the story into another direction. Accepting a company's story is the first step in telling it accurately. If there are warts, one notes them but also points to offsetting factors that put warts into perspective. Reporters appreciate self-awareness. Too many executives lack it or hide behind an overly optimistic message. As one CEO says, facts are friendly. Had Wall Street's mathematicians understood that, the risks they took would have been better hedged.
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