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My career began in the accounting field, where I was involved directly with risk in the financial world. At that time I did not think of accounting as risk-related, although much of my work ended up in the field of forensics accounting. The risk of financial loss is tracked through various testing and auditing, of course, and that certainly is a form of risk mitigation and prevention.

     In 1978 I left accounting and began writing part-time while also consulting in the financial services industry. For seven years I consulted in systems development for insurance companies, broker-dealers, and real estate concerns. In 1985 I began writing fulltime, specializing in investing and trading topics, business management, and real estate. More recently, my focus has moved to traded, especially in options. I have written six options books published by John Wiley & Sons, FT Press, Traders Library and Amacom Books. I have also ghost written and research two books specifically on supply chain risk management. Over the past two years I have also published numerous articles involved with risk management.

     Currently I have a book proposal in my agent’s hands and he has been sharing this with publishers. We have some interest in it and I am hopeful that we will be getting an offer soon. It is on the topic of the risk of a global pandemic to the global supply chain. Along the same lines, I have also had an article published in a double-blind journal this past February and I have several other articles submitted to journals for review; all are concerned with risk management in one form or another.

The current crisis goes well beyond the highly visible political in-fighting. One of the main lessons is that excessive spending by government is a destructive force. Another is that few can agree on how to solve the problem. A Keynesian model tells us that spending by the government moves the economy forward. Frankly, I have seen no evidence that this is true. Jobs are created in the private sector, and when government leaves businesses alone, the economy thrives.

     Several steps would help to fix the current crisis. Disturbingly, the current U.S. administration is doing the exact opposite of all of these steps:

     a. Lower all corporate and individual tax rates and simplify the tax code. The U.S. corporate rate is the second highest in the industrialized world, and high taxes inhibit business growth and job creation.

     b. Balance the budget and enact an amendment requiring the budget to be balanced every year. This is the only way to control the spending habits of politicians.

     c. Reduce spending by eliminating several cabinet departments, such as Education, Education, and Health & Human Services. Combine and consolidate Agriculture into Interior and fold Interior into Commerce.

I am not suggesting that the activities these departments perform are not important. But they all belong at the state level. The federal government should be very, very small and should be involved in very little. Currently, it is out of control.

     As an optimist, I believe that the USA will regain its role as an economic leader in the world, but this will require a massive change politically. Here in the USA many people believe that we are hated by much of the world. I don’t believe that. I think Americans are among the most generous of people, interested in helping others when disasters strike and when our friends (and even our enemies) need help. But I do believe that many outside of the USA hate the policies of the government, especially when decisions are made about foreign relations by inexperienced leaders who do not know how international policy works, or who have not articulated a clear policy.

     Once the country returns its focus to being a successful trading partner, building strong alliances, and taking a strong and consistent stand with our enemies, I believe the USA will once again be a respected world leader and a good neighbor. 

The balance of economic power does seem to be shifting, but this is a highly unpredictable matter. Many people believe that China is going to take over the leading economic position within a few years, but I do not. China suffers from profound problems. These include much higher unemployment and under-employment than the official numbers claim; profound poverty in the rural areas of the country; energy problems in the industrial areas; and the worst pollution in the world that will create severe health problems within the next generation.

     China also has an odd jobs issue. For unskilled labor, unemployment is quite high. At the same time, skilled and technical jobs are difficult to fill because there are few training programs; so China imports many of the higher-skilled jobs from other countries.

     In the long term, I believe that the USA will continue to be one of the leading economic forces in the world economy. However, everything is global and this will increase in the future. I think we will see a regional economy more so than one identified with individual countries. This is already becoming the case in the European economy, which we hear about more and more in place of the economies of the individual countries. Having a single currency for most of Europe has been an important step in consolidating the economic community regionally. This is a positive trend and I see it continuing into the new century.

They must do so. Globalization means improved efficiency, but risk managers need to balance efficiency with security. The great threat in the future is going to be technological security. As IT moves rapidly into the mode of cloud computing, efficiency will be vastly improved and this is where great emphasis is being placed. However, in the past, the equation was simple and had two components. Greater speed and storage  = Greater efficiency and Greater speed and storage = Greater risk. In the future, I think this relationship has to be changed.

     The great challenge to efficient risk management is going to be creation of clouds and other venues in which efficiency and security can be competitively improved as aspects of a comprehensive method for computing. Stakeholders may not always be aware of the relationship between speed and security. Investors and top management want return on investment and as a result, pressure is put on risk managers to improve efficiency. The great lesson of the near future is that stakeholders need to be shown how better efficiency may also bring with it greater threats. In this environment, a realized threat will destroy return on investment, and ironically, the greater the efficiency, the bigger the cost will be of a realized risk.

The coming year is most likely to experience a big risk crisis in the financial world. This will not be limited to trading on the markets or even to countries defaulting on their debt, although that is a big part of an emerging new world. The crisis may also extend to the safety of liquid assets, especially those vulnerable to cyber attacks.

     Organizations need to enter into a defensive phase, more now than ever before. This means not maintaining liquid assets in any one economy, but diversifying among several different regions. They may also want to avoid placing too many assets with any one banking organization, given the recent history in the USA of big banks and investment houses failing unexpectedly. Finally, organizations may want to diversify by creating predetermined levels of liquidity and converting a portion of that liquidity into gold and silver holdings -- not stocks in mining companies, but direct ownership of bullion. If any major currencies “blow up” or countries default on their obligations, the economies of those countries could rapidly fail. In that case, no organization will want to have liquid holdings or any substance stuck in the monetary unit involved.

Currently many organizations see this as a business cost and an irritant to doing things the way they have been done for years. But those who believe this will find themselves in the same class of people investing in blacksmithing shops at the same time the automobile began to be mass produced. All methodologies may become obsolete, and this includes old-style risk management (or operating without much awareness of risk).

     Today and in the near future, risk managers have to decide whether efficiency is a good enough goal by itself, or whether the necessary security has to be constructed as a crucial attribute of the more efficient system. Risk management is always going to cost money and impact the budget. The risk of failing to recognize it as a competitive advantage is the second most dangerous threat to the organization. The most dangerous, of course, is the failure to understand the nature of risk.

Risk management can be used to create a competitive advantage. It can be turned from a cost element into a profit center, by incorporating the risk program into the quality control and customer responsiveness that all organizations strive to improve. In this new environment, you seek to improve efficiency while also making security an efficient element of the system itself … and not an outside impediment.

Anyone working directly with risk management, including the Chief Risk Officer, has a great challenge. This is to educate the organization so that its culture can change. The old-style view that “it’s not my job” is very destructive in trying to build a risk-conscious culture. Toyota accomplished this with revolutionary assembly line changes and other developments in a system called jidoka and using Six Sigma in General Electric had the same kind of cultural changes

     CROs may look to programs like Six Sigma to help change the corporate culture. Simply making everyone aware of the nature of risk and internal vulnerabilities is a profound challenge. Among the most difficult insiders to change are the top executives, who are keenly focused on the bottom line and the stock price. Everything a CRO brings forward to the budget meeting will be met with two questions: “What will this cost?” and “Is it really necessary?” The challenge is to demonstrate how remaining exposed to a range of risks is likely to cost much more than doing nothing; and yes, it is necessary.

As the new development of cloud computing moves at rapid pace, it presents a serious security risk. This, risk specialists need to be aware of the need to match efficiency with security. Cloud computing is a great idea, but it also poses great threats.

     I think this is the most important development because it contains amazing opportunities as well as serious threats. It will enable all companies, even the smallest and most local to become truly global in scope, communications and customer base. The cloud is a miracle that opens up possibilities we haven’t even imagined yet. But like all great opportunities, it also has to be built and controlled with great care.

The most valuable aspect to this site is that it brings together thousands of people from all around the world, sharing similar interests and concerns. We do not need to go to a seminar and pay thousands of dollars to listen to a series of speakers. We do not need to take time away from productive time to learn. Having this website  available makes all risk management global on its own terms.

     The importance of building membership and continuing to speak with one another cannot be emphasized too much. As a writer and businessman coming from an accounting background and with a keen interest in risk management, I have already experienced an eye-opening growth in my understand of the “world of risk” just by being a member of the site.

     I encourage all members to invite their associates to also join the site, and to become contributors to the process by communicating with one another, writing blogs, taking courses, downloading special reports, and reading what others have written. The best risk management education is going to come from working with others in the same field.