Bruce Wasserstein is chairman and CEO of asset manager Lazard — so he obviously has “a dog in this hunt”. In this op-ed he characterizes the current financial crisis and proposes his solutions.
We are in the midst of a financial maelstrom, and the voices of pain and confusion have reverberated throughout the economic and political world. Financial markets, of course, are cyclical. It’s natural for investors and politicians to be disappointed when booms end, but they always do. The issue before us is how to prepare for the future.
We can learn a few lessons from past experience. Sarbanes-Oxley was a kernel of a good idea, but was poorly executed in many ways.
We have learned that the “risk management” emperor had no clothes. Hundreds of Ph.D.s in risk-management positions are now discredited. The protective pyrotechnic mechanisms such as Value At Risk, which were supposed to predict the risk in a portfolio of assets, are duds. The financial controls have proven to be inadequate.
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