Genius Led By Donkeys

I find that this quote from my paper on Risk Adjusted Bonuses had appeared on quite a few sites. So if you're tool azy to read the whole thing:

A clear factor in the recent calamities has been the lack of expertise at the very top levels of banks. Reviewing the publicly available lists of board members at many firms, I observe that most of them not only have never taken an active role in trading, analysis or risk management, but that today few would even be accepted as a trainee in a less prestigious organisation than they ran into the ground. In effect we had mediocre cavalry officers in charge of nuclear bombers. Fred Goodwin is the most egregious example of this, but he is far from unique.

If anything, a bit more research shows it to be worse than that. We find people better equipped to work in the leisure industry than banking to be quite common. I doubt if more than 5% of the boards of banks before, during and after the crash could have understood any of the risk issues at any useful level, even if they had been interested, which they were not.

Imagine if the people in charge of safety at an airline had never flown in a plane, or fixed one, or piloted, but instead were picked on their ability at golf and accountancy. Look at the set of ex-traders, risk managers or even quants on the boards of big banks. I almost failed to find them at all.

The mystery is not why the banks failed, but how they survived so long.