Given the events of the past weeks and months, any self-respecting risk professional, trader or banking cleaner can now expect to be assailed by the same nasty question at interview: "What went wrong?"
At least, this is what recruitment firm Robert Walters says in its latest market update. Paula Maidens, a director of financial services at the company, elaborates: "Banks want to know what controls candidates would put in place to prevent writedowns from being repeated. Why weren't these parcels of products priced properly?"
For anyone bereft of ideas on how to respond, here are a few bite-sized answers from risk professionals with an opinion on the issue:
· Incorrect assumptions: "The assumptions underpinning banks' risk models turned out to be very far from true," says Bruce Weber, an IT and markets specialist at London Business School. "The main assumption was that the level of risk for the securities being created was going to remain palatable in future."
· Plodding risk managers: "The only kind of risk management which works in large complex organisations today is paranoid and nimble," says Christopher Whalen, managing director of Institutional Risk Analytics, a consultancy that assesses risk in the financial services industry. "This is what Goldman and Blackrock use. Unfortunately, clients are sold something more like plodding and dogmatic."
· Senior management oblivion: "Three levels below CEO, I can guarantee you that most people don't understand risk," says a senior trader at one bank. "This lack of comprehension was coupled with a spectacular bull market in which asset prices were rising and yields were low and the only way to achieve enhanced yield was to increase leverage and invest in riskier products."
· Misguided confidence in the free market: "Everyone was complicit in creating the problem," says the trader. "And regulators didn't pay attention because they believed the free market would simply cleanse itself."