Thursday, June 26, 2008

Assessing Risk and Doing Good

"Effective risk management starts with the recognition that any forecast can be wrong, then weighs the consequences of being wrong. Only then can we decide whether to make a bet."

Peter L. Bernstein, "What Happens If We're Wrong?" New York Times, June 22, 2008.

Bernstein's application of risk management thinking is applied to the housing crisis in this article: How could we possibly think that home prices would keep rising forever? And worse, how could we take actions based upon this overly-optimistic forecast that would get us in trouble when things didn't work out? It all seems clear now, but apparently not then.

Some other good news but with an appropriate risk management caveat:

"Americans donated $306 billion to charities in 2007, as U.S. philanthropic giving rose to a record level despite a downturn in the national economy, a survey being released today has found.

Charitable giving increased 1 percent last year, when inflation is taken into account, and surpassed $300 billion for the first time, according to the Giving USA survey.

But experts said that the growth may be short-lived, as many charities reported concerns that rising gas prices and turmoil in the housing and credit markets could hamper their fundraising this year."

Philip Rucker, "Despite Economic Dip, Giving Rose in 2007." Washington Post, June 23, 2008.

The vast bulk of dollars, some $229 million, was given by individuals, who are likely to be most affected by economic conditions of 2008. I suspect the 7 percent increase in 2007 foundation funding will not be maintained -- although some argue that foundations should spend more during economic downturns.

And then there's the question of who bears the risk.

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