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August 8, 2000—Risky
Business and Bum Luck
A very worthy lady financial journalist has written us to
say our Frederick's of Hollywood Bankruptcy Headline Contest is very funny
but terribly silly. We would only slightly demur. We started the darn
thing to lighten up these Dog Days of August, but also to highlight the
startling rise in bankruptcies as well as the clear and present danger of
burgeoning risk in the systems that hold mankind together. So watch out.
More on this in a minute.
Our best Frederick's headline of the week comes from a sophisticated young
lady in the Southeast whose wit would play very well in England. About
Frederick's, she says, "Bum luck!"
To get more on Frederick's, we have recommended the folks at
BankruptcyData.com (www.bankruptcydata.com/fredericks.htm).
More importantly, investigate this bankruptcy site to capture the emerging,
accelerating trend towards corporate bankruptcies. In fact, sign up for
their free daily bankruptcy alert which will either provide you with glee or
ulcers.
All this is merely prelude to the main act. The story of 2000--not just in
business, but in aviation, health, public schools, homicideville, banks,
geopolitics, and on and on--will be vastly increased risk. We're just
beginning to see people talk about it now. Vice President Gore, desperately
projecting his own conduct onto the Republicans, accuses Governor Bush of
risky schemes. Yet it is clearly the present Administration that has pushed
domestic and global credit markets into a truly bad pickle.
Plague situations--Lyme Disease, Aids, West Nile Virus, and a host of other
pesky conditions--have been intensified by complacency. Craziness in the
stock markets has reached new heights, with the ever prescient Ray DeVoe
reporting on rising "Stock Market Rage ... suggesting even more
irrationality and frustration than I had imagined." Stock market rage has
included death threats to analysts who call a spade a spade, putting out
deep sells on technology stocks overtaken by blimp-like valuations.
If the U.S. and the world are much less safe today than when the senior Bush
left office, it stems from an inability to see or care about what's coming
next--which is what risk management is all about. Prosperity, hubris, and
utter opportunism can very well conceal the beasts in our jungle for quite a
while. We would contend, moreover, that the exceptional stress that today
overwhelms our citizens also leads to tremendous blindness about the present
and the future.
Aviation gives us a good metaphor that perfectly visualizes our present
estate. See "Flying Safer Skies: A Surprising Number of Crashes Come When
Skilled Pilots Don't See the Mountain Right in Front of Them," Boston
Globe, pp. Fl, F3, F4, July 25, 2000. Between 1990 and 1999, the
largest number of fatalities on commercial aircraft occurred because of
"Controlled Flight into Terrain." In plain English, that means the pilots
could not see the mountains they were flying into. Now we are finally
putting Enhanced Ground Proximity Warnings Systems into the planes that will
make all the difference.
But in countless other areas, where death, tragedy, and the Four Horsemen
are on the way, we are not installing new systems or new infrastructure.
Domestically, while we are producing budget surpluses based on gutting the
defense budget, we show no signs of building relevant societal structures or
revising our constitutional arrangements to mitigate risk.
This misunderstanding of the looming risks in our midst is probably leading
to a miscalculation of major proportions on the part of all our leading
political parties. They are relying on bad, skewed polling data, at least
according to our research. In general, they believe Americans are suffering
from prosperity, having become fat, dumb, and happy. Despite the
prosperity, Americans, save for a few Wall Street types and a clutch of
fatuous dotcom millionaires, are not that contented. First off, the
standard of living for most of the middle class has not improved: it has
often declined. That's why we have two working parents desperately trying
to sustain the economic burdens formerly shouldered by one salaryman.
Furthermore, there is growing anecdotal evidence that Americans sense they
are now engaged in a risky business, but the experts don't know that our
citizens are scared or that they are haunted by a sense of risk. See
"Scared? Try to be Rational For Once in Your Life," New York Times,
July 30, 2000, New York Metropolitan, p. l9. "Some researchers say that
while they must occasionally fight off the impulse to write off ordinary
people as fools, they also sometimes find that the lay individual's
assessment of risk, while perhaps not strictly rational, has something that
mere numbers cannot catch." This article says that there are interesting
cultural forces that shape how we see risk--what we think is risky and what
we don't. More interesting to this observer are the cultural forces that
blind the sophisticated and the researchers to deep risks, while average,
less articulate people smell the dangers around the corner. And we think
Richard Nixon's silent majority does feel the risk. In this vein, it is no
accident that TV's current horrific but sensationally popular prime-time
winner happens to have "survivor" in its title.
Ray DeVoe, in his July 28 issue of The DeVoe Report, tells of the
commodity trader and potato futures expert who got the drift of the markets
completely wrong. When DeVoe queried him on this, the expert said, "Never
forget one thing, young man, I was right, the market was wrong."
Well, risk is rising, and the markets are wrong. We will hear lots more
about it. And the best and brightest are not on top of it.
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