I’m doing some work with banks lately and it always impresses me the size and importance of their risk departments. They study counter-party risk (the risk someone you’re doing business will fail), credit risk (the risk that someone won’t be able to pay due to other obligations), market risk (the risk that the entire market is over valued), and about a million other types. Over night they have thousands of computers perform millions of calculations that model what might happen in the coming days and weeks.
What do you do to study risk? I always find it amazing how little ordinary people tend to consider risk. While most people don’t adequately prepare for losing their job, I’m not only thinking about the big things. What’s the risk the bus line that you take to work is the next one cut by PAT? What if it takes you longer to get market value for your house then you thought it would? What if your friend calls in that loan he gave you last month? The fact that many of these risks go under-considered troubles me for a lot of reasons, but one in particular is on my mind at the moment.
The fact that people are willing to live this risky is the leading cause of big government… Medicare, Unemployment, Bankruptcy, even Social Security are all programs designed to help those who didn’t properly consider risks of one sort or another. There’s plenty of evidence to support that all of these programs are not good for the economy over all, but at the same time we cannot live as savages that allow people to starve or go without medicine. It’s a tough problem, and one that unfairly penalizes those among us who live not just within our means, but with built in contingencies.
Perhaps we need to instill in the next generation a better sense of the dangers of not considering risk and slowly remove some of the safety nets?