Category Archives: Risk and risk management

US Port Strike Threat Highlights Supply Chain Risk

One issue we’ve raise over the year is the ways that the corporate fetish for offshoring and outsourcing greatly increases business risk. Even when savings are realized (and as we’ve discussed, in many cases, the main result is a transfer from factory/lower level workers to managers and executives), they are seldom weighed properly against the increased fragility of the operation, and the resulting exposure to big losses. For instance, extended supply chains entail more communications across the chain, longer production cycles, more shipping, all of which increase the odds of writeoffs via having too much inventory or inventory in the wrong place, and those occasional losses can swamp the savings over time.

Those supply chain risks have come into focus, as the Financial Times reminds us, as the possibility of West Coast port strikes looms.

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Financial Interconnectedness and Systemic Risk: New Fed Report Flags 7 Behemoths

Yves here. This post addresses a topic near and dear to my heart: the importance of financial interconnectedness, or what Richard Bookstaber called “tight coupling” in his book A Demon of Our Own Design. Tight coupling occurs when the processes in a system are so closely linked that when certain types of activities begin, they propagate through the system and cannot be halted. Or as Bookstaber put it in 2011:

Non-linear systems are complex because a change in one component can propagate through the system to lead to surprising and apparently disproportionate effect elsewhere, e.g. the famous “butterfly effect”….

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Are Neocons in Iraq Thinking Like the Banks that Blew up the Global Economy?

Yves here. For the normally anodyne OilPrice to run an article, Obama Fiddles While Iraq Burns, that is openly frustrated with US conduct suggests that there is considerable consternation in the oil industry about the lack of a coherent policy in Iraq. One school of thought has been that the US wanted a breakup, but history like the dissolution of Yugoslavia shows that they are ugly, bloody affairs that hurt the population and infrastructure. Both are bad for business, such as drilling for and refining oil, which was apparent reason we occupied Iraq in the first place.

I’ve discussed with Lambert the difficult of coming up with a coherent rationale for the US stance towards Iraq.

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Wolf Richter: Bank Regulator OCC Details Crazy Risk-Taking, Blames Fed

Yves here. Former Fed Chairman William McChesney Martin famously said that the job of the central bank was “to take away the punch bowl just as the party gets going.” That line of thinking went out of fashion under Alan Greenspan. Now we have the perverse spectacle of the most bank-cronyistic regulator, the Office of the Comptroller of the Currency, berating the Fed for spiking the punch via overly accommodative monetary policy.

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New Zealand: The Shell Company Incorporation Franchises: Round-Up

In a series of recent posts on shell company incorporation scams, we reanalysed the New Zealand entities incorporated by GT Group (Ian Taylor), New Zealand Company Incorporators (Michael Taylor) and The Company Net (Glenn Smith). Curiously, some modest and uncontroversial reforms have yet to be enacted.

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Global Food Security Needs States to Ally with Family Farmers

Yves here. If you live in an advanced economy, and are at least middle income, you probably don’t give much thought to the availability of food. Expect that to change in the coming years. Agribusiness is a major driver of food insecurity. Successful experiments show that relocalization of food production can be an effective remedy.

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While New Zealand’s Company Law Reform Stalls, GT Group Helps a Thieving Ukrainian Despot

Since the Great New Zealand Shell Company Deregistration Frenzy of 2009-2011, which we rounded up here and here, the New Zealand Government, and the New Zealand Companies Office, have managed to catch a bit of sleep, bless them.

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