On August 7^th, The Economist published an article titled "Confessions of a Risk Manager", which discussed the unappreciated and frustrating role of a major bank Risk Manager.  While discussing the Risk Management Team's failings in missing signs that started to appear in 2005, the more troubling point of the article is the bank's attitude toward risk management in general.

There was pressure on the Risk Management department to "keep up" and approve transactions by bankers and traders.  The article said, "In their eyes, we were not earning money for the bank. Worse, we had the power to say no and therefore prevent business from being done. Traders saw us as obstructive and a hindrance to their ability to earn higher bonuses."   Reading the rest of the article is almost exactly like reading the news reports of what happened to cause the Enron implosion.

Enron's CEO Jeff Skilling proudly pointed to his Risk Assessment and Control department, run by Rick Buy.  Despite this show, Buy explained in promotional videotape for Arthur Andersen describing his job as not getting in the way.  It was documented that time after time, pressure was successfully put on Buy to approve marginal to perilous deals, with predictable results.

Toward the end Buy was fired along with other Enron executives simply because he could not withstand the pressure that made him ineffective.  The week, we are seeing the result of not having strong, effective risk management departments monitor trading and investing activities.

Hopefully, we will not have to go another painful lesson on the value of this necessary control.