Wall Street Post-Mortems

Were you too busy transitioning back to business from year-end festivities to read the Sunday NY Times? Here are two long articles you should know about:

Risk Mismanagement. I thought Rollover IRAs and charitable remainder annuity trusts were tough to write about. Imagine trying to explain Wall Street's quants and their magic mathematical models – e.g., VaR or Value at Risk. That's the task Joe Nocera tackles here, at length. You'll encounter dragons and, of course, black swans.

The End of the Financial World as We Know It. Michael Lewis ("Liar's Poker") and David Einhorn (president of Greenlight Capital, a hedge fund) examine the imbalances and misaligned interests that allowed Madoff to flourish and giant financial firms to fail.

The common denominator evident in these and other recent post-mortems? Short-sightedness. Quants, focused on trading, saw no need to take a longer view of risk. Wall Street CEOs, feeling obliged to dance to a quarterly-earnings tune, forgot to worry about the likelihood of losing billions when the music stopped. And "long-term" investors failed to notice that the stock-market crash of 1987 was atypical, far from the worst that has happened before or can happen again.

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Interesting, isn't it? As Rupert Murdoch reshapes The Wall Street Journal into more of a generalized national newspaper, The New York Times responds by upping its financial coverage.