Since the Fall of 2008, there has been much media attention on corporate greed, lack of government oversight, and the flawed methodology of the credit rating agencies to determine solvency and credit soundness of corporations and public entities. These headliners are only symptoms of a more deeply rooted problem. The problem is the issue of unparalleled risk and grossly underestimated level of risk taking fostered by the firms that contributed to the financial meltdown.
There was a substantial lack of understanding by management, boards, investors and oversight bodies of the consequences to the level of risk taking. The failure to see how their risk taking practices were out of line with their strategic plan cost these firms much of their equity. Unfortunately, the accepted premise in the financial and investor community was that these firms had instituted sophisticated internal risk management processes designed to prevent destabilizing financial distress. They reassured various stakeholders that robust financial models were in place to strengthen risk management efforts.