Central Banks Have Failed!

Risk managment tries to minimise the risk associated with a given situation, structure or paradigm.

Uncertainty is associated with the changing of situation, structure or paradigm.

Risk management is a cope-out that marginalises the need to deal with uncertainty.

A bank works on the assumption that it is as good as its collateral value - which is largely mortgages or mortgage-backed papers. The collateral value increases with bank lending, which means that there is no limit to loan expansion - until the borrowers are exhausted and couldn't pay.

In risk management, you work to ensure that the collateral really does exist, and that its current value is indeed what the market says.

When the situation changes as a result of the exhaustion by banks of their customers, the whole bank lending system collapses - and out of it comes uncertainty - as to what the next model will be.

There is no uncertainty where the banking system is going - down!

There is uncertainty as to what to replace the banking system - that is, what banking policy - and nobody has a clue - because nobody is thinking about it.

While individual banks undertake risk management, it is responsibility of the central bank to manage systemic risks.

Central banks around the world have failed.