The Good, the Bad, and the Ugly

25 years ago, a hedge fund, Long-Term Capital Management L.P (LTCM) ?collapsed in these days right after 1998 Russian financial crisis causing unprecedented events that even these days, we can see remnant effects. LTCM’s most famous quantitative strategy was buying the local debt of developing country governments and hedging out the foreign exchange risk. When Russia defaulted on its ruble debt in August 1998, with counterparty banks shutting down and Russian government freezing ruble trading, collection on the hedges failed. What caused the end of LTCM, was however, a flight to liquid assets that toppled other leveraged trades the hedge fund did, with its dream team of finance luminaries, including Nobel Prize winners…

?Right after the crisis, regulatory actions like Federal Reserve' s rescue operation of cutting interest rates in a bid to shore up a falling stock market, was unprecedented at the time and even 25 years later, now we observe similar effects at every crisis that occurred.

?LTCM event or later the housing melt down in 2008, Lehman brothers, or Silicon Valley Bank bankruptcy just recently, resulting in increasing magnitude of loss in each crisis with billions of dollars losses in financial markets, millions of job losses or loss of homes, impacting real lives all around the globe, actually tell us that we are not able to find a permanent solution to the root-cause of our problem…It is as if, we are taking pills trying to overcome symptoms, but not really curing the root-cause. ?So what is the real root-cause in all these crises? And can it be cured?

?In all above-mentioned crises, we can for sure observe aggressive risk taking by some of the players in the markets for big rewards. But risk & reward goes hand in hand, as basic nature of doing business, so this observation alone does not help formulating a cure other than need for self discipline. But in fact, when we realize that in all these crises, lack of transparency and lack of proper governance mechanisms accompanied or even encouraged aggressive risk taking behavior, we can point to a root-cause that can actually be cured.

For example, in US subprime mortgage crisis, inability of rating agencies to properly rate securitizations on subprime mortgages, allowed non-transparent Mortgage-backed securities (MBS) and Collateralized debt obligations (CDOs) financing the housing bubble in US and spreading of such subprime lending practice without notice, finally resulting in housing melt down in 2008 where millions of people lost their homes. If the risks of this subprime lending and associated MBS, CDO ratings were properly measured and accounted, such aggressive risk taking would not have spread resulting a crisis of that magnitude globally. My goal with this example is not to blame a particular stakeholder for the crises, but simply to assert that the underlying cause of the crises is the tendency of aggressive risk taking combined with lack of proper governance mechanisms in place. So, then if agreed, this is a root-cause that can be cured, i.e. to avoid future crises of such magnitude, we need to increase governance & control mechanism, especially when there is ample amount of risk taking, such as during times when interest rates are low and liquidity is high, compelling investors for higher risky assets and investments. Then let's march and set up proper mechanisms...Easier said than done right?

Dear reader, globally we are right after a very low interest rate regime which encouraged more risk taking by market players all around the globe and with the tightening actions by almost all Central banks around the globe. It seems like we are waiting for the next crises around the corner without exactly knowing its timing. Remember the famous saying “Fed tightens until something breaks”…As the fight against inflation is complex and Fed and other Central banks are expected to hold higher interest rates for longer periods before easing again, likelihood of similar crisis is increasing especially in geographies and markets lacking transparency. Meanwhile households are squeezed with high inflation and rising household costs even before a crisis.

At this time, the reason, I decided to start this newsletter as someone who spent his last 25 years in areas of Risk management, governance & control, is the belief that, we can not simply expect regulators and governing bodies to set up magic policies that would bring governance & controls in markets avoiding such costly crises, but actually we need to start from grass-roots to accomplish first a mindset shift until a “critical mass” is obtained among decision-makers in markets believing in proper governance to avoid costly outcomes, not just financial outcomes but social outcomes as well.

?To do this, we need to establish market participants to have awareness first and establish accountability for their actions in the micro level contributing to systemic risk.

?In recent years, after 2008 crises, importance of governance, control and risk management had been emphasized much stronger and louder of course. However even with this increased awareness, now, when we look at involvement of risk function and resources in overall value-chain of any business in industrial or financial sector, we still see somewhat limited involvement in business sense and acting as a control agent at best rather than acting as designer in business decision making process involving risks. Although, Enterprise Risk Management (ERM) concept is gearing towards driving systems and processes for making “risk informed” decisions, in my opinion, we are still far from optimal use of resources, and we would need to still clarify potential capability of balancing act of Risk & Rewards and make organizations be aware of this potential and its importance in achieving sustainable business goals, rather than just aggressive risk taking.

?With this belief, I decided to form this newsletter to simply generate awareness and contribute to such a shift in mindsets sharing my experiences and observations in risk management and management in general to create business value in a sustainable way. I am planning to cover topics and share my experiences and hope to interact with my subscribers to contribute to such vision.

I hope readers of this newsletter, who are still going through their educational programs, would find it useful in terms of understanding core competencies for effective governance & risk management, while readers from all levels in risk organizations would find this newsletter interesting with examples and experiences to benchmark for their own responsibilities. But most importantly, I hope all readers from the business community, global and local, in all levels from risk analysts to Chief Risk Officers, to Board of Directors, from sales associates to Head of businesses, General Managers find it exciting to discover the balancing power of proper risk management & governance and share relevant experiences, the Good, the Bad and the Ugly and associated learning perspectives that could enrich business ideas & products that will create sustainable and profitable growth.

Please contact Alper Eker at

[email protected]

?yi, K?tü ve ?irkin

Bundan 25 y?l ?nce, bir hedge fonu olan Long-Term Capital Management L.P (LTCM), 1998 Rusya mali krizinin hemen ard?ndan bu günlerde ??ktü ve etkilerini bugün bile g?rebilece?imiz benzeri g?rülmemi? olaylara neden oldu. LTCM'in en ünlü stratejisi, geli?mekte olan ülke hükümetlerinin yerel bor?lar?n? sat?n almak ve d?viz riskinden korunma ara?lar? almakt?. Rusya A?ustos 1998'de ruble borcunu ?deyemedi?inde, kar?? taraf bankalar? kapand???nda ve Rus hükümeti ruble ticaretini dondurdu?unda, koruma ama?l? tahsilatlar ger?ekle?medi. Sonras?nda olu?an panikle LTCM'in sona ermesine neden olan ?ey, likit varl?klara ka???la devrilen kald?ra?l? i?lemleri oldu.

Krizin hemen ard?ndan, Fed'in dü?en borsay? desteklemek amac?yla faiz oranlar?n? dü?ürme operasyonun o d?nemde benzeri g?rülmemi?ti ?yle ki 25 y?l sonra, meydana gelen her krizde benzer etkileri g?rüyoruz.

LTCM veya daha sonra 2008'de konut erimesi, Lehman karde?ler veya bu y?l Silikon Vadisi Bankas? krizi, finansal piyasalarda milyarlarca dolar kayba, milyonlarca i? kayb?na ve insanlar?n oturduklar? evlerini kaybetmelerine neden oldu. Her krizde kayb?n büyüklü?ünün giderek artmas?, asl?nda sorunun temel nedenine kal?c? bir ??züm bulamad???m?z? anlat?yor… Sanki semptomlar? ortadan kald?rmaya ?al??an haplar al?yoruz ama as?l nedeni tedavi etmiyoruz. . Peki asl?nda tüm bu krizlerin ger?ek temel nedeni nedir? Ve tedavi edilebilir mi?

Yukar?da bahsedilen tüm krizlerde, baz? ki?i ve kurumlar?n büyük getiriler u?runa agresif risk ald???n? elbette g?zlemleyebiliriz, ancak i? yapman?n temel do?as? gere?i risk ve getiri el ele gider. Dolay?s?yla bu g?zlem tek ba??na bir tedavi formüle etmeye yard?mc? olmuyor. Ancak asl?nda, tüm bu krizlerde ?effafl?k eksikli?inin ve risk y?netim ve kontrol eksikli?inin agresif risk almay? beraberinde getirdi?ini ve hatta te?vik etti?ini anlad???m?zda, ger?ekten tedavi edilebilecek bir temel neden bulmaya ba?layabiliriz.

?rne?in, derecelendirme kurulu?lar?n?n yüksek faizli ipoteklerdeki menkul k?ymetle?tirmeleri do?ru bir ?ekilde derecelendirememesi, konut balonunu finanse eden ?effaf olmayan ?potek destekli menkul k?ymetlere (MBS) ve Teminatl? bor? yükümlülüklerine (CDO'lar) izin verilmesi ve bu tür yüksek faizli ve gev?ek kredilendirme uygulamalar?n?n yayg?nla?mas?, sonu?ta konut krizinin ortaya ??kmas?yla sonu?lanm??t?r. 2008'de milyonlarca insan?n evini kaybetti?i bir erime ya?and?. E?er bu dü?ük gelir gruplar?na verilen artan faizli kredilerin ve bunlar?n üzerine kurulan MBS ve CDO’lar?n riskleri do?ru bir ?ekilde hesaplansayd? ve bildirilseydi, a???a ??kan riskler kar??s?nda, bu kadar agresif risk al?namayacak, bu büyüklükte bir krize yol a?acak ?ekilde yay?lma olmayacakt?. Bu ?rnekle amac?m, krizler i?in belirli bir payda?? su?lamak de?il, sadece krizlerin alt?nda yatan nedenin, y?neti?im mekanizmalar?n?n eksikli?i ile birlikte agresif risk alma e?ilimi oldu?unu ileri sürmek oldu?unu tekrar s?ylemem gerekir. E?er ?yleyse, o zaman bu temel neden tedavi edilebilir; yani gelecekteki bu büyüklükteki krizlerden ka??nmak i?in, ?zellikle faiz oranlar?n?n dü?ük oldu?u zamanlardaki gibi bol miktarda risk alman?n oldu?u durumlarda y?neti?im ve kontrol mekanizmas?n? artt?rmam?z gerekir. Dü?ük faiz ortam? ve yüksek Likidite, her yerde yat?r?mc?lar? daha riskli varl?k ve yat?r?mlara y?neltmektedir. O zaman bu mekanizmalar kurulmal?...S?ylemesi yapmaktan kolay, de?il mi?

De?erli okurum, küresel olarak piyasa oyuncular?n? daha fazla risk almaya te?vik eden dü?ük bir faiz rejiminin hemen ard?ndan, dünya ?ap?nda hemen hemen tüm Merkez bankalar?n?n s?k?la?t?rma hamleleri sonras?nda sanki bir sonraki krizi bekliyor gibiyiz. Zamanlamas?n? tam olarak bilmedi?imiz ama k??e ba??nda bekleyen bir kriz...Piyasalardaki “Fed bir ?eyler bozuluncaya kadar s?k?la?t?r?r” me?hur s?zünü hat?rlay?n... Enflasyonla mücadelenin karma??kl??? ve Fed ile di?er Merkez bankas? politikalar?n?n tekrar gev?emeden ?nce daha uzun süre yüksek faiz oranlar?n? tutaca?? beklentilerinin oldu?u bu günlerde, ?zellikle ?effafl???n olmad??? co?rafya ve piyasalarda bu tip krizlerin ??kma olas?l??? giderek art?yor. Bu arada hane halk? artan enflasyon ve kira gibi artan giderlerle s?k??makta...??te bu günlerde, ya?am?n?n son 25 y?l?n? Risk y?netimi, y?neti?im ve kontrol alanlar?nda ge?irmi? biri olarak, bu haber bültenini ba?latmaya karar vermemin nedeni, düzenleyicilerin ve y?netim organlar?n?n, maliyetli krizleri ?nlemek ad?na, piyasalarda y?neti?im ve kontrolleri sa?layacak sihirli politikalar olu?turmalar?n? bekleyemeyece?imize olan inanc?md?r. Asl?nda büyüklükleri giderek artan krizleri beklemek yerine, ?ncelikle piyasalarda karar vericiler aras?nda, risk y?netimine, kontrol ve y?neti?ime inanan, “kritik bir kitle” elde edilene kadar, bir zihniyet de?i?imini ger?ekle?tirmek i?in tabandan ba?lamam?z gerekiyor. Bunu yapabilmek i?in ?ncelikle piyasa kat?l?mc?lar?n?n fark?ndal???n? olu?turmal? ve mikro düzeyde sistemik riske katk?da bulunan eylemlerine ili?kin hesap verebilirli?i tesis etmeliyiz.

Son y?llarda, 2008 krizlerinden sonra y?neti?imin, kontrolün ve risk y?netiminin ?nemi elbette daha gü?lü ve daha yüksek sesle vurgulanmaya ba?land?. Ancak bu artan fark?ndal??a ra?men, art?k risk fonksiyonu ve kaynaklar?n?n endüstriyel veya finans sekt?ründeki herhangi bir i?letmenin genel de?er zincirine kat?l?m?na bakt???m?zda, i? karar verme sürecinde tasar?mc? olarak hareket etmek yerine, i? anlam?nda kat?l?m?n hala s?n?rl? oldu?unu ve en iyi ihtimalle bir kontrol arac?s? olarak hareket etti?ini g?rüyoruz. Her ne kadar Kurumsal Risk Y?netimi (ERM) kavram?, "risk bilgili" kararlar almaya y?nelik sistemleri ve süre?leri y?nlendirmeye y?nelik olsa da, benim g?rü?üme g?re, kaynaklar?n optimal kullan?m?ndan hala ?ok uzaktay?z ve Risk ve Getiri terazisinin dengesini, ?Risk Y?netimi'nin potansiyel kapasitesini hala a??kl??a kavu?turmam?z gerekiyor. Kurumlar?n kar amac? ile sadece agresif risk almaktan ziyade, bu potansiyelin ve sürdürülebilir i? hedeflerine ula?madaki ?neminin fark?na varmalar?n? sa?lamam?z gerekiyor.

Bu inan?la, sadece fark?ndal?k yaratmak ve b?yle bir de?i?ime katk?da bulunmak, genel olarak risk y?netimi ve y?neti?im konusundaki deneyimlerimi ve g?zlemlerimi sürdürülebilir bir ?ekilde i? de?eri yaratmak i?in payla?mak amac?yla bu bülteni olu?turmaya karar verdim. Konular? ele almay? ve deneyimlerimi payla?may? planl?yorum ve buna katk?da bulunmak i?in abonelerimle etkile?ime ge?meyi umuyorum.

Halen e?itim programlar?na devam eden bu haber bülteninin okuyucular?n?n, etkili y?neti?im ve risk y?netimi i?in temel becerileri anlama a??s?ndan yararl? bulaca??n?, risk organizasyonlar?n?n her seviyesindeki okuyucular?n ise ?rnekler ve deneyimlerle, Sorumluluklar?n? yerine getirmek ve kendi katk?lar?n? geni?letmek i?in bu bülteni faydal? bulaca??n? umuyorum. Ancak en ?nemlisi, küresel ve yerel i? dünyas?ndan, risk analistinden, risk y?netim ba?kan?na ve y?netim kurulu üyelerine, sat?? uzman?ndan i? kolu y?neticileri ve genel müdür de dahil tüm seviyelerdeki okuyucular?n, sürdürülebilir ve karl? büyüme i?in, risk i?eren i? fikirlerini ve ürünlerini, y?neti?im ve risk y?netiminin dengeleme gücü ile harekete ge?iren perspektifleri payla?may?, ve ?yi, K?tü ve ?irkin deneyimlerden ders ??karmay? heyecan verici bulaca??n? umuyorum.

Sorular?n?z i?in benimle temasa ge?ebilirsiniz

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