RISK MITIGATION: Risk Management Fundamentals, with Timothy Geithner
Business performance is increasingly dependent on a firm’s ability to manage and mitigate risk. In this lesson from Big Think Edge, former U.S. Secretary of the Treasury Timothy Geithner teaches the fundamentals of risk management, based on lessons learned during the 2008 Financial Crisis. By the end of it, you’ll have a three-part framework for developing your organization’s risk management strategy.
Timothy Geithner is the president of Warburg Pincus, a Wall Street private equity firm. Before joining Warburg Pincus, Mr. Geithner served as the 75th secretary of the U.S. Department of the Treasury. He previously served as President and Chief Executive Officer of the Federal Reserve Bank of New York from 2003 to 2009. He began his U.S government career with the Treasury Department in 1988. Mr. Geithner holds a B.A. in government and Asian studies from Dartmouth College and an M.A. in International Economics and East Asian Studies from Johns Hopkins School of Advanced International Studies.
Geithner is the author of Stress Test: Reflections on Financial Crises.
Establish a strong risk culture
You need some counterbalance to the forces that lead people to take more risk than they understand. And that requires you bring a sort of an independent pair of eyes and go through the experiment of saying, but what if things were really bad? What if your optimism is not justified? What if you lose the capacity to fund your positions easily? What if liquidity evaporates? What if there’s a terrible recession? The critical thing in finance in particular, but it’s true in many parts of life, is to make sure that you have people with the right incentives to think about the dark scenario, with power and influence and the ability to constrain and lean against the incentives other people face to take risk.
And the core of that judgment is the recognition that the world is inherently uncertain. It’s very hard to judge what the relative probabilities are of a growing economy or a recession. Very hard to judge. They’re not really knowable with perfect confidence. And the right way to deal with that uncertainty is to build in a greater cushion against the risk of the bad event.
Build in a cushion to protect against the low probability event
What we found in the – during the boom, during that period of optimism that house prices wouldn’t fall – is that firms were not building in enough of an expectation or enough of a cushion, again, against the extreme event. They viewed it as so improbable, so outside the memory of experience – no recent memory, again, of panics. It was so improbable, there was no reason to pay the resources it takes to build a cushion against that.
I mean, again, think about it: If you think about the United States in 2005, 2006, 2007 and you told people, “We’re going to force you to prepare for a great depression,” they’d think it was inconceivable. You know, it’s like, as I say in the book, it’s like in a modern highway system with airbags and antilock brakes, which people thought were buying a huge measure of security, “We’re going to force people to drive at, you know, 35 miles an hour.” I mean, they found it inconceivable. That would be – that wouldn’t make sense. And we didn’t force them to do that.
We ultimately forced them to do that in the crisis. One way we broke the panic was to force them to hold resources, prove to people they could raise resources to cover the losses in the great depression. But again, it’s just a way of thinking about trying to build into the culture of decision-making a greater sense of humility about what you can’t know and a greater sense of caution about the uncertain future, to look at, yeah, maybe the low probability event but the event that can be existential in its cost.
Prepare for the worst when confidence is high
When you’re trying to think about how you manage a financial crisis or how you manage a financial institution, how you manage a business, how you manage your personal finances, it’s a pretty similar lesson in the sense that you want to make sure that, since there are lots of things that can affect your fortunes that you can’t control, that you try to think through carefully what could go wrong and how can you protect yourselves against that.
It’s the most important thing to do when there seems like the least reason for doing it. So when people are around telling you that there’s no risk of a crisis, our financial system’s invulnerable to crisis, recessions are going to be mild and unlikely. When you’re in a period where the power of those beliefs of optimism are so widespread, that’s the most important point, in some sense, to decide that you’re going to put aside, save a little bit of that, of the returns from optimism and build yourself a better margin of safety.
In this lesson from Big Think Edge, former U.S. Secretary of the Treasury Timothy Geithner teaches the fundamentals of risk management, based on lessons learned during the 2008 Financial Crisis.
Here are 7 often-overlooked World Heritage Sites, each with its own history.
- UNESCO World Heritage Sites are locations of high value to humanity, either for their cultural, historical, or natural significance.
- Some are even designated as World Heritage Sites because humans don't go there at all, while others have felt the effects of too much human influence.
- These 7 UNESCO World Heritage Sites each represent an overlooked or at-risk facet of humanity's collective cultural heritage.
Researchers hope the technology will further our understanding of the brain, but lawmakers may not be ready for the ethical challenges.
- Researchers at the Yale School of Medicine successfully restored some functions to pig brains that had been dead for hours.
- They hope the technology will advance our understanding of the brain, potentially developing new treatments for debilitating diseases and disorders.
- The research raises many ethical questions and puts to the test our current understanding of death.
The image of an undead brain coming back to live again is the stuff of science fiction. Not just any science fiction, specifically B-grade sci fi. What instantly springs to mind is the black-and-white horrors of films like Fiend Without a Face. Bad acting. Plastic monstrosities. Visible strings. And a spinal cord that, for some reason, is also a tentacle?
But like any good science fiction, it's only a matter of time before some manner of it seeps into our reality. This week's Nature published the findings of researchers who managed to restore function to pigs' brains that were clinically dead. At least, what we once thought of as dead.
What's dead may never die, it seems
The researchers did not hail from House Greyjoy — "What is dead may never die" — but came largely from the Yale School of Medicine. They connected 32 pig brains to a system called BrainEx. BrainEx is an artificial perfusion system — that is, a system that takes over the functions normally regulated by the organ. The pigs had been killed four hours earlier at a U.S. Department of Agriculture slaughterhouse; their brains completely removed from the skulls.
BrainEx pumped an experiment solution into the brain that essentially mimic blood flow. It brought oxygen and nutrients to the tissues, giving brain cells the resources to begin many normal functions. The cells began consuming and metabolizing sugars. The brains' immune systems kicked in. Neuron samples could carry an electrical signal. Some brain cells even responded to drugs.
The researchers have managed to keep some brains alive for up to 36 hours, and currently do not know if BrainEx can have sustained the brains longer. "It is conceivable we are just preventing the inevitable, and the brain won't be able to recover," said Nenad Sestan, Yale neuroscientist and the lead researcher.
As a control, other brains received either a fake solution or no solution at all. None revived brain activity and deteriorated as normal.
The researchers hope the technology can enhance our ability to study the brain and its cellular functions. One of the main avenues of such studies would be brain disorders and diseases. This could point the way to developing new of treatments for the likes of brain injuries, Alzheimer's, Huntington's, and neurodegenerative conditions.
"This is an extraordinary and very promising breakthrough for neuroscience. It immediately offers a much better model for studying the human brain, which is extraordinarily important, given the vast amount of human suffering from diseases of the mind [and] brain," Nita Farahany, the bioethicists at the Duke University School of Law who wrote the study's commentary, told National Geographic.
An ethical gray matter
Before anyone gets an Island of Dr. Moreau vibe, it's worth noting that the brains did not approach neural activity anywhere near consciousness.
The BrainEx solution contained chemicals that prevented neurons from firing. To be extra cautious, the researchers also monitored the brains for any such activity and were prepared to administer an anesthetic should they have seen signs of consciousness.
Even so, the research signals a massive debate to come regarding medical ethics and our definition of death.
Most countries define death, clinically speaking, as the irreversible loss of brain or circulatory function. This definition was already at odds with some folk- and value-centric understandings, but where do we go if it becomes possible to reverse clinical death with artificial perfusion?
"This is wild," Jonathan Moreno, a bioethicist at the University of Pennsylvania, told the New York Times. "If ever there was an issue that merited big public deliberation on the ethics of science and medicine, this is one."
One possible consequence involves organ donations. Some European countries require emergency responders to use a process that preserves organs when they cannot resuscitate a person. They continue to pump blood throughout the body, but use a "thoracic aortic occlusion balloon" to prevent that blood from reaching the brain.
The system is already controversial because it raises concerns about what caused the patient's death. But what happens when brain death becomes readily reversible? Stuart Younger, a bioethicist at Case Western Reserve University, told Nature that if BrainEx were to become widely available, it could shrink the pool of eligible donors.
"There's a potential conflict here between the interests of potential donors — who might not even be donors — and people who are waiting for organs," he said.
It will be a while before such experiments go anywhere near human subjects. A more immediate ethical question relates to how such experiments harm animal subjects.
Ethical review boards evaluate research protocols and can reject any that causes undue pain, suffering, or distress. Since dead animals feel no pain, suffer no trauma, they are typically approved as subjects. But how do such boards make a judgement regarding the suffering of a "cellularly active" brain? The distress of a partially alive brain?
The dilemma is unprecedented.
Setting new boundaries
Another science fiction story that comes to mind when discussing this story is, of course, Frankenstein. As Farahany told National Geographic: "It is definitely has [sic] a good science-fiction element to it, and it is restoring cellular function where we previously thought impossible. But to have Frankenstein, you need some degree of consciousness, some 'there' there. [The researchers] did not recover any form of consciousness in this study, and it is still unclear if we ever could. But we are one step closer to that possibility."
She's right. The researchers undertook their research for the betterment of humanity, and we may one day reap some unimaginable medical benefits from it. The ethical questions, however, remain as unsettling as the stories they remind us of.
Upvote/downvote each of the videos below!
As you vote, keep in mind that we are looking for a winner with the most engaging social venture pitch - an idea you would want to invest in.
SMARTER FASTER trademarks owned by The Big Think, Inc. All rights reserved.