Alitalia senza alternativa

Lasciamo perdere le idee campate in aria di cordate italiane! Alitalia ha un solo possibile partner, per evitare il fallimento, e si chiama Air France. Basti pensare al successo dei francesi nell'integrazione con KLM che, seppure non in condizioni cosi' disastrose come Alitalia, non se la passava poi tanto bene quando accetto' la fusione con Air France.

Un messaggio agli amici lombardi. Piantatela di fare le vittime su Malpensa. I primi responsabili del fallimento di Malpensa siete stati proprio voi, che non avete mai rinunciato a Linate e avete potenziato Orio al Serio! E poi, ditemi, perche' un torinese deve fare oltre 30km di strada statale per arrivare all'hub lombardo? O perche' un veneto dovrebbe farsi code da carneficina nella tratta da Brescia fino a Malpensa, solo perche' il vostro sistema di trasporti e' inadeguato?

Iniziate con un sano mea culpa e cogliete l'opportunita' di ridare slancio a Malpensa con i giusti investimenti. Vi ricordo che New York non ha un hub... e si sopravvive ugualmente.

Allego anche un articolo finalmente di buon senso pubblicato sul 24ore.

Alitalia-AirFrance: scelta dolorosa, ma senza alternativa

di Gianni Dragoni

È probabilmente la prima volta nella sua storia che la sofferente Alitalia si trova di fronte a un piano di ristrutturazione credibile. La garanzia migliore è data dai risultati positivi di Air France-Klm e dall'incremento dei profitti sprigionato dal 2004, quando c'è stata la fusione tra le due compagnie. È un piano meno doloroso di tanti altri, per quanto ci sia il sacrificio di posti di lavoro. Ci sono 2.120 esuberi, pari al 12% dell'intero organico di circa 17.500 dipendenti, ripartiti tra Az Fly (10mila addetti) e la società Servizi (7.400), che furono divise con lo spezzatino deciso nel 2004 e realizzato l'anno successivo con il piano Cimoli, quando al Governo c'era Silvio Berlusconi.

Nessuno rimarrà per strada, ha detto Jean-Cyril Spinetta. Per chi non potrà accedere ai benefici del pensionamento, è prevista la cassa integrazione, la mobilità e un'integrazione salariale con il piano sociale di Air France. Questi strumenti garantiranno per sette anni il 100% dello stipendio a chi perderà il lavoro. Sembra che nessun piano di ristrutturazione applicato non solo all'Alitalia, ma anche in altre aziende italiane, abbia mai offerto questo trattamento. L'altro punto di incertezza riguarda i 3.209 lavoratori dell'Alitalia Servizi che non verranno assorbiti in Fly, tra i quali c'è l'Atitech di Napoli: per loro c'è l'impegno a garantire appalti, e quindi lavoro, per almeno otto anni.

Eppure probabilmente questo piano e questa offerta, l'unica proposta di acquisto vincolante presentata da quando, 15 mesi fa, Prodi e Padoa-Schioppa hanno dato il via alla privatizzazione, non sono sufficienti a vincere la resistenza dei sindacati. C'è soprattutto l'opposizione dei piloti, irrigiditi per i 507 esuberi, accentuati dalla chiusura del cargo e forse indispettiti dalle concessioni ottenute dai confederali, ai quali è stato accordato il salvataggio di un migliaio di lavoratori in più di Az Servizi trasferiti nella Fly.

L'altro capitolo doloroso è il ridimensionamento di Malpensa, sul quale Spinetta non è arretrato di un metro, per le ingenti perdite causate dal sistema di rete su Malpensa, circa 200 milioni all'anno. Il piano conferma che il gruppo delle tre compagnie avrà tre hub, Parigi, Amsterdam e Roma Fiumicino. Da Roma, appena le condizioni di mercato lo permetteranno, potranno essere riaperte le rotte verso Shanghai, Washington e Montreal. Milano è clasifficato come "importante gateway", una porta d'ingresso. Questo lascia scontenti molti imprenditori e politici del Nord, ma per Spinetta è un punto non soggetto a trattativa.

Con il piano Air France, Alitalia finisce in mani solide, ma dimagrisce a poco più di una compagnia regionale: la flotta passeggeri scende da 174 a 137 aerei (esclusa Volare), dei quali solo a 20 a lungo raggio. Lo sviluppo del lungo raggio riprenderà lentamente nel 2010, un aereo in più all'anno fino al 2018 (Boeing 777), «qualora le condizioni di mercato lo consentissero», avverte però Spinetta. Invece lo sviluppo della flotta a medio raggio (che perderà 16 Md80 e 18 aerei regionali tra Atr72 e Embraer) «sarà probabilmente inferiore a causa della crescente concorrenza dei vettori low cost e dell'alta velocità su rotaia», dicono i francesi.

Insomma, l'Alitalia deve diventare più piccola per diventare sana. È questa la prospettiva cui sono messi davanti i sindacati nella difficile trattativa che riprenderà lunedì 31 marzo. L'alternativa non è l'arrivo di un partner che offra condizioni migliori, non si scorgono veri pretendenti all'orizzonte, ma sarebbe il fallimento e quindi un ridimensionamento ancora maggiore dell'atività e dell'organico.

Cosa fare per il futuro

La domanda che piu' di frequente mi pongo leggendo i giornali in questo periodo e' se, con nuove regole, si possa ridurre il rischio di incorrere nel dissesto finanziario di cui siamo testimoni in questi mesi.

Non ho una teoria convincente, ma mi pare opportuno, come ho fatto di recente, lasciare Voi, miei lettori, trarre spunto da alcuni interessanti articoli che mi capita di leggere. Di seguito, dunque, un articolo dal FT sull'argomento.

More regulation will not prevent next crisis

By John Kay

Published: March 25 2008 18:47 | Last updated: March 25 2008 18:47

Suppose that at some time in 2006 – or, more usefully, earlier – the UK Financial Services Authority had written to the banks it supervises about the explosion of structured credit products. They might have said that the practice endangered their balance sheets and financial stability more generally. Suppose the FSA had then insisted that banks substantially reduce the exposure to these markets. With hindsight, this judgment would have been entirely justified.

Yet would these banks have accepted this opinion? Or would there have been the political and press reaction that has greeted other means to tax or rein in the City of London’s activities?

If the FSA had insisted its view be put to the board of each bank, would the discussion have reflected gratitude that unnoticed risks had been brought to their attention? Or would there have been outrage at bureaucratic interference in the affairs of well-managed private businesses?

If the regulator had imposed more demanding capital requirements on the most aggressive originators, would these companies have meekly complied? Or would they have claimed distortion of competition, threatened judicial review and organised quiet, or not so quiet, meetings with government ministers? If higher solvency margins had been in place at Northern Rock or Bear Stearns, would it have made any difference to their fates when their liquidity dried up?

The notion that future banking crises can be averted by better regulation demonstrates unrealistic expectations of what regulation might achieve. Banking supervision asks public agencies to second-guess the decisions of executives who earn millions in bonuses and business strategies that yield billions in profit. If Hank Paulson, US Treasury secretary, were doing the job of day-to-day regulation personally, he might – just about – have the respect and competence to get away with it. But the work is done by relatively junior administrators who lack the authority to intimidate the bankers and who have little confidence that their controversial decisions will win political support.

Perhaps there was once a golden age when the authority and wisdom of central bankers were so great that such regulation was possible and effective, although the recurrence of bank crises suggests otherwise. Today the financial services industry is the most powerful political lobby in the country and public trust in and respect for regulation are low. All regulators feel buffeted by threats of legal action; there is no easier way to win applause from business audiences than by denouncing red tape.

But in financial services, the demand today is for more regulation. That call should be resisted. The state cannot ensure the stability of the financial system and a serious attempt to do so would involve intervention on an unacceptable scale. But to acknowledge responsibility for financial stability is to assume a costly liability for failure to achieve it. That is what has happened.

Since financial stability is unattainable, the more important objective is to insulate the real economy from the consequences of financial instability. Government should protect small depositors and ensure that the payment system for households and businesses continues to function. There should be the same powers to take control of essential services in the event of corporate failure that exist for other public utilities. The deposit protection scheme should also have preferential creditor status to restrict the use of retail deposits as collateral for speculative activities.

Banking supervision should then be limited to the weeding out of unfit persons. Capital requirements, liquidity provisions and risk assessments should be matters for the business judgment of the financial institution themselves. We cannot prevent booms and busts in credit markets, but today’s regulation of risk and capital – which is more reflective of what has occurred than of what may occur – does more to aggravate these cycles than to prevent them. Regulation in a market economy is targeted at specific market failures and should not be a charter for the general scrutiny of business strategies of private business. Banking should be no exception.

Copyright The Financial Times Limited 2008

Che cosa sta succedendo

Mi pare importante tenervi aggiornati sui fatti finanziari di oltre oceano, visto che indubbiamente hanno effetti diretti sulla situazione italiana, dal cambio $/€ alla liquidita' sui mercati europei e alla sempre piu' rinnovata debolezza della nostra economia.

Di seguito un articolo dal New York Times di questa mattina.

Can’t Grasp Credit Crisis? Join the Club

By DAVID LEONHARDT

Raise your hand if you don’t quite understand this whole financial crisis.

It has been going on for seven months now, and many people probably feel as if they should understand it. But they don’t, not really. The part about the housing crash seems simple enough. With banks whispering sweet encouragement, people bought homes they couldn’t afford, and now they are falling behind on their mortgages.

But the overwhelming majority of homeowners are doing just fine. So how is it that a mess concentrated in one part of the mortgage business — subprime loans — has frozen the credit markets, sent stock markets gyrating, caused the collapse of Bear Stearns, left the economy on the brink of the worst recession in a generation and forced the Federal Reserve to take its boldest action since the Depression?

I’m here to urge you not to feel sheepish. This may not be entirely comforting, but your confusion is shared by many people who are in the middle of the crisis.

“We’re exposing parts of the capital markets that most of us had never heard of,” Ethan Harris, a top Lehman Brothers economist, said last week. Robert Rubin, the former Treasury secretary and current Citigroup executive, has said that he hadn’t heard of “liquidity puts,” an obscure kind of financial contract, until they started causing big problems for Citigroup.

I spent a good part of the last few days calling people on Wall Street and in the government to ask one question, “Can you try to explain this to me?” When they finished, I often had a highly sophisticated follow-up question: “Can you try again?”

I emerged thinking that all the uncertainty has created a panic that is partly unfounded. That said, the crisis isn’t close to ending, either. Ben Bernanke, the Federal Reserve chairman, won’t be able to wave a magic wand and make everything better, no matter how many more times he cuts rates. As Mr. Bernanke himself has suggested, the only thing that will end the crisis is the end of the housing bust.

So let’s go back to the beginning of the boom.

It really started in 1998, when large numbers of people decided that real estate, which still hadn’t recovered from the early 1990s slump, had become a bargain. At the same time, Wall Street was making it easier for buyers to get loans. It was transforming the mortgage business from a local one, centered around banks, to a global one, in which investors from almost anywhere could pool money to lend.

The new competition brought down mortgage fees and spurred some useful innovation. Why, after all, should someone who knows that she’s going to move after just a few years have no choice but to take out a 30-year fixed-rate mortgage?

As is often the case with innovations, though, there was soon too much of a good thing. Those same global investors, flush with cash from Asia’s boom or rising oil prices, demanded good returns. Wall Street had an answer: subprime mortgages.

Because these loans go to people stretching to afford a house, they come with higher interest rates — even if they’re disguised by low initial rates — and thus higher returns. The mortgages were then sliced into pieces and bundled into investments, often known as collateralized debt obligations, or C.D.O.’s (a term that appeared in this newspaper only three times before 2005, but almost every week since last summer). Once bundled, different types of mortgages could be sold to different groups of investors.

Investors then goosed their returns through leverage, the oldest strategy around. They made $100 million bets with only $1 million of their own money and $99 million in debt. If the value of the investment rose to just $101 million, the investors would double their money. Home buyers did the same thing, by putting little money down on new houses, notes Mark Zandi of Moody’s Economy.com. The Fed under Alan Greenspan helped make it all possible, sharply reducing interest rates, to prevent a double-dip recession after the technology bust of 2000, and then keeping them low for several years.

All these investments, of course, were highly risky. Higher returns almost always come with greater risk. But people — by “people,” I’m referring here to Mr. Greenspan, Mr. Bernanke, the top executives of almost every Wall Street firm and a majority of American homeowners — decided that the usual rules didn’t apply because home prices nationwide had never fallen before. Based on that idea, prices rose ever higher — so high, says Robert Barbera of ITG, an investment firm, that they were destined to fall. It was a self-defeating prophecy.

And it largely explains why the mortgage mess has had such ripple effects. The American home seemed like such a sure bet that a huge portion of the global financial system ended up owning a piece of it. Last summer, many policy makers were hoping that the crisis wouldn’t spread to traditional banks, like Citibank, because they had sold off the underlying mortgages to investors. But it turned out that many banks had also sold complex insurance policies on the mortgage debt. That left them on the hook when homeowners who had taken out a wishful-thinking mortgage could no longer get out of it by flipping their house for a profit.

Many of these bets were not huge, but were so highly leveraged that any losses became magnified. If that $100 million investment I described above were to lose just $1 million of its value, the investor who put up only $1 million would lose everything. That’s why a hedge fund associated with the prestigious Carlyle Group collapsed last week.

“If anything goes awry, these dominos fall very fast,” said Charles R. Morris, a former banker who tells the story of the crisis in a new book, “The Trillion Dollar Meltdown.”

This toxic combination — the ubiquity of bad investments and their potential to mushroom — has shocked Wall Street into a state of deep conservatism. The soundness of any investment firm depends largely on other firms having confidence that it has real assets standing behind its bets. So firms are now hoarding cash instead of lending it, until they understand how bad the housing crash will become and how exposed to it they are. Any institution that seems to have a high-risk portfolio, regardless of whether it has enough assets to support the portfolio, faces the double whammy of investors demanding their money back and lenders shutting the door in their face. Goodbye, Bear Stearns.

The conservatism has gone so far that it’s affecting many solid would-be borrowers, which, in turn, is hurting the broader economy and aggravating Wall Streets fears. A recession could cause credit card loans and other forms of debt, some of which were also based on overexuberance, to start going bad as well.

Many economists, on the right and the left, now argue that the only solution is for the federal government to step in and buy some of the unwanted debt, as the Fed began doing last weekend. This is called a bailout, and there is no doubt that giving a handout to Wall Street lenders or foolish home buyers — as opposed to, say, laid-off factory workers — is deeply distasteful. At this point, though, the alternative may be worse.

Bubbles lead to busts. Busts lead to panics. And panics can lead to long, deep economic downturns, which is why the Fed has been taking unprecedented actions to restore confidence.

“You say, my goodness, how could subprime mortgage loans take out the whole global financial system?” Mr. Zandi said. “That’s how.”

Cronistoria di questi ultimi giorni

Neanche il miglior giallista avrebbe potuto pensare un'evolversi degli eventi come quello di questi ultimi giorni. Provo a mettermi nei panni di tutte quelle persone che avevano tenuto la maggior parte dei loro risparmi investiti nell'azienda in cui lavorano ed ora, non solo hanno perso quei risparmi, ma rischiano pure di perdere il lavoro... la cosa mi lascia molto triste.

Vi allego un articolo molto interessante dal New York Times, che mi ha segnalato Fausto.

Saving Wall St. (For Now)

By ANDREW ROSS SORKIN

The whispers began on Wednesday, and by Sunday it was all over.

Somehow, in the space of about 100 hours, the value of a share of Bear Stearns, one of the nation’s most storied investment banks, skidded from about $67 to a bargain-basement $2. On Monday, just to twist the knife, some wit taped a $2 bill to the glass doors of Bear’s headquarters.

How could this happen?

It is hard to say it was an accident. Bear Stearns’s stunning downfall and subsequent sale to JPMorgan Chase on Sunday was orchestrated by some of the most powerful people on Wall Street and in Washington. It will go down either as a heroic rescue of the financial system or grand theft, Wall Street style. Maybe it was a bit of both.

Make no mistake: this was one of the greatest corporate euthanizations of all time. And Wall Street played its own gleeful role in it.

On Friday morning, when there still seemed to be a glimmer of hope that the stricken Bear might survive, William C. Repko, former chairman of JPMorgan’s restructuring group and now senior managing director at Evercore Partners, was already writing Bear’s obituary.

“Bear failed,” Mr. Repko was telling me. “Bear is gone.” He seemed so sure. “This is a run on the bank,” he said. “It’s what happened to Enron.” Bear’s demise, it seemed, was a foregone conclusion.

The run on Bear began around midday on Wednesday, when a series of banks and hedge funds started a whisper campaign against the firm. The firm was doomed, they said. It was almost broke. But some of the money managers were clearly talking their book. They were obviously shorting Bear’s stock, betting it would decline.

How do I know? Because I was on the receiving end of a handful of phone calls from the Gang of Wall Street Whisperers. All of them offered a variation on the same theme: Bear Stearns is toast; no one is trading with the firm; clients are pulling their money out.

Bear Stearns, of course, was at that very moment telling anyone who would listen all of this was a lie. And I’ll give Alan D. Schwartz, Bear’s chief executive, the benefit of the doubt. I don’t think he saw the end coming. (That is, in part, because he was playing host to a conference of media big shots at the Breakers in Palm Beach while the bank he runs was careering off the rails. That was a better excuse than the one Jimmy Cayne, Bear’s chairman, had last year, as the firm’s troubles deepened. Mr. Cayne was off playing bridge. )

By Thursday, the drumbeat of worries over Bear had grown so loud that my voice mail box was full of gleeful short sellers and panicked investors. The talk built up that evening, as Bear went hat in hand to the Federal Reserve because the firm had run out of money. By Friday, even with the Federal Reserve’s rescue effort by way of JPMorgan in full swing, Bear’s stock fell to $30 a share. People forget that Wall Street is a fragile machine. Cash, or “liquidity,” as it is known in the trade, is the oxygen that keeps investment banks alive. No matter how healthy you are, you can’t breathe if someone puts a pillow over your head. That’s what Bear Stearns’s clients and rivals did, and they did it without remorse.

On Monday, some investors speculated that JPMorgan, the clear winner in this sorry episode, helped fan the rumors about Bear so it could pick up the firm on the cheap. I don’t buy it. But I would say that dozens of banks and hedge funds, including JPMorgan, were quick to kick Bear while it was down — and kept right on kicking. The Gang of Wall Street Whisperers has now moved on, aiming at Lehman Brothers, whose stock plunged on Monday.

For Bear, the final nail in the coffin came not from Wall Street, but from the government. After the Fed agreed to give Bear a lifeline on Friday, it became clear that the market still wasn’t prepared to do business with the firm.

The Fed was going to be on the hook Monday morning for untold billions, and it was already taking heat for using taxpayer money to backstop a private institution that had hardly been a model citizen. Bear deserved to be punished for its reckless behavior, some said. So the government, led by Henry M. Paulson, the Treasury secretary (and the former chief executive of Goldman Sachs, for you conspiracy theorists), put a gun to Bear’s head: take a deal with JPMorgan or file for bankruptcy. It was a perfect antidote to the “moral hazard” argument — Bear’s employees would lose their jobs, and shareholders would lose their shirts, but the financial markets would be saved, at least for another day.

JPMorgan’s chief executive, Jamie Dimon, took full advantage of Bear’s dire straits. When he started his sprint-speed talks with Bear on Saturday, JPMorgan suggested it might pay in the low double digits for each share of Bear, people involved in the talks said. And that was without the Fed’s agreeing to take $30 billion of Bear’s most toxic assets off its hands.

By midday Sunday, however, after looking over Bear’s books and saying it was scared stiff by what it saw, JPMorgan dropped its price to $2 a share.

“Even at $8, it was an ‘oh my god’ number. Two dollars wasn’t that much worse,” a person involved in the talks said.

Maybe so. But Bear’s shareholders are livid. An astute investor asked on a conference call with JPMorgan on Sunday night what the difference was, for shareholders, between $2 and bankruptcy? Considering that Bear’s headquarters on Madison Avenue is valued at $1.2 billion, or $8 a share, the answer isn’t as clear as it might seem.

Some investors seem to be speculating that Bear might somehow wring more money out of JPMorgan; Bear’s shares closed at $4.81 on Monday, well above JPMorgan’s offer price.

But getting JPMorgan to raise its bid is probably wishful thinking. JPMorgan has Bear over a barrel. If Bear shareholders vote down the deal, JPMorgan could turn off the cash tap and send Bear into bankruptcy. The Fed is not likely to go along with a rival plan either.And get this: JPMorgan now has an option on Bear’s headquarters. If the deal collapses, Mr. Dimon can evict Bear from its own building.

No whisper campaign needed.

L'ottovolante finanziario

Che dire questi ultimi giorni ci stanno dimostrando l'ampiezza della crisi finanziaria in cui ci siamo cacciati. Avevo espresso nei mesi passati un certo pessimismo per la situazione, ma qui stiamo andando ben oltre le mie previsioni.

I fatti di questo weekend ci dicono che ci sono banche a rischio fallimento e cio' avrebbe conseguenze ancor peggiori sull'attuale situazione.

Nonostante le mie incertezze sull'operato della Fed, devo dire che il salvataggio di Bear Sterns, orchestrato in collaborazione con JPMorgan, potrebbe rivelarsi una mossa importante, soprattutto per la tempestivita' dell'azione. Certo, leggendo i giornali stamattina, mi pare che altri istituti possano, a breve, trovarsi in condizioni analoghe a Bear Sterns. E pare che domani la Fed possa tagliari i tassi di un intero punto percentuale, cosa mai successa nella storia.

Vi lascio con un articolo di Alan Greenspan dal FT di oggi.

We will never have a perfect model of risk

By Alan Greenspan

Published: March 16 2008 18:25 | Last updated: March 16 2008 18:25

The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the second world war. It will end eventually when home prices stabilise and with them the value of equity in homes supporting troubled mortgage securities.

Home price stabilisation will restore much-needed clarity to the marketplace because losses will be realised rather than prospective. The major source of contagion will be removed. Financial institutions will then recapitalise or go out of business. Trust in the solvency of remaining counterparties will be gradually restored and issuance of loans and securities will slowly return to normal. Although inventories of vacant single-family homes – those belonging to builders and investors – have recently peaked, until liquidation of these inventories proceeds in earnest, the level at which home prices will stabilise remains problematic.

The American housing bubble peaked in early 2006, followed by an abrupt and rapid retreat over the past two years. Since summer 2006, hundreds of thousands of homeowners, many forced by foreclosure, have moved out of single-family homes into rental housing, creating an excess of approximately 600,000 vacant, largely investor-owned single-family units for sale. Homebuilders caught by the market’s rapid contraction have involuntarily added an additional 200,000 newly built homes to the “empty-house-for-sale” market.

Home prices have been receding rapidly under the weight of this inventory overhang. Single-family housing starts have declined by 60 per cent since early 2006, but have only recently fallen below single-family home demand. Indeed, this sharply lower level of pending housing additions, together with the expected 1m increase in the number of US households this year as well as underlying demand for second homes and replacement homes, together imply a decline in the stock of vacant single-family homes for sale of approximately 400,000 over the course of 2008.

The pace of liquidation is likely to pick up even more as new-home construction falls further. The level of home prices will probably stabilise as soon as the rate of inventory liquidation reaches its maximum, well before the ultimate elimination of inventory excess. That point, however, is still an indeterminate number of months in the future.

The crisis will leave many casualties. Particularly hard hit will be much of today’s financial risk-valuation system, significant parts of which failed under stress. Those of us who look to the self-interest of lending institutions to protect shareholder equity have to be in a state of shocked disbelief. But I hope that one of the casualties will not be reliance on counterparty surveillance, and more generally financial self-regulation, as the fundamental balance mechanism for global finance.

The problems, at least in the early stages of this crisis, were most pronounced among banks whose regulatory oversight has been elaborate for years. To be sure, the systems of setting bank capital requirements, both economic and regulatory, which have developed over the past two decades will be overhauled substantially in light of recent experience. Indeed, private investors are already demanding larger capital buffers and collateral, and the mavens convened under the auspices of the Bank for International Settlements will surely amend the newly minted Basel II international regulatory accord. Also being questioned, tangentially, are the mathematically elegant economic forecasting models that once again have been unable to anticipate a financial crisis or the onset of recession.

Credit market systems and their degree of leverage and liquidity are rooted in trust in the solvency of counterparties. That trust was badly shaken on August 9 2007 when BNP Paribas revealed large unanticipated losses on US subprime securities. Risk management systems – and the models at their core – were supposed to guard against outsized losses. How did we go so wrong?

The essential problem is that our models – both risk models and econometric models – as complex as they have become, are still too simple to capture the full array of governing variables that drive global economic reality. A model, of necessity, is an abstraction from the full detail of the real world. In line with the time-honoured observation that diversification lowers risk, computers crunched reams of historical data in quest of negative correlations between prices of tradeable assets; correlations that could help insulate investment portfolios from the broad swings in an economy. When such asset prices, rather than offsetting each other’s movements, fell in unison on and following August 9 last year, huge losses across virtually all risk-asset classes ensued.

The most credible explanation of why risk management based on state-of-the-art statistical models can perform so poorly is that the underlying data used to estimate a model’s structure are drawn generally from both periods of euphoria and periods of fear, that is, from regimes with importantly different dynamics.

The contraction phase of credit and business cycles, driven by fear, have historically been far shorter and far more abrupt than the expansion phase, which is driven by a slow but cumulative build-up of euphoria. Over the past half-century, the American economy was in contraction only one-seventh of the time. But it is the onset of that one-seventh for which risk management must be most prepared. Negative correlations among asset classes, so evident during an expansion, can collapse as all asset prices fall together, undermining the strategy of improving risk/reward trade-offs through diversification.

If we could adequately model each phase of the cycle separately and divine the signals that tell us when the shift in regimes is about to occur, risk management systems would be improved significantly. One difficult problem is that much of the dubious financial-market behaviour that chronically emerges during the expansion phase is the result not of ignorance of badly underpriced risk, but of the concern that unless firms participate in a current euphoria, they will irretrievably lose market share.

Risk management seeks to maximise risk-adjusted rates of return on equity; often, in the process, underused capital is considered “waste”. Gone are the days when banks prided themselves on triple-A ratings and sometimes hinted at hidden balance-sheet reserves (often true) that conveyed an aura of invulnerability. Today, or at least prior to August 9 2007, the assets and capital that define triple-A status, or seemed to, entailed too high a competitive cost.

I do not say that the current systems of risk management or econometric forecasting are not in large measure soundly rooted in the real world. The exploration of the benefits of diversification in risk-management models is unquestionably sound and the use of an elaborate macroeconometric model does enforce forecasting discipline. It requires, for example, that saving equal investment, that the marginal propensity to consume be positive, and that inventories be non-negative. These restraints, among others, eliminated most of the distressing inconsistencies of the unsophisticated forecasting world of a half century ago.

But these models do not fully capture what I believe has been, to date, only a peripheral addendum to business-cycle and financial modelling – the innate human responses that result in swings between euphoria and fear that repeat themselves generation after generation with little evidence of a learning curve. Asset-price bubbles build and burst today as they have since the early 18th century, when modern competitive markets evolved. To be sure, we tend to label such behavioural responses as non-rational. But forecasters’ concerns should be not whether human response is rational or irrational, only that it is observable and systematic.

This, to me, is the large missing “explanatory variable” in both risk-management and macroeconometric models. Current practice is to introduce notions of “animal spirits”, as John Maynard Keynes put it, through “add factors”. That is, we arbitrarily change the outcome of our model’s equations. Add-factoring, however, is an implicit recognition that models, as we currently employ them, are structurally deficient; it does not sufficiently address the problem of the missing variable.

We will never be able to anticipate all discontinuities in financial markets. Discontinuities are, of necessity, a surprise. Anticipated events are arbitraged away. But if, as I strongly suspect, periods of euphoria are very difficult to suppress as they build, they will not collapse until the speculative fever breaks on its own. Paradoxically, to the extent risk management succeeds in identifying such episodes, it can prolong and enlarge the period of euphoria. But risk management can never reach perfection. It will eventually fail and a disturbing reality will be laid bare, prompting an unexpected and sharp discontinuous response.

In the current crisis, as in past crises, we can learn much, and policy in the future will be informed by these lessons. But we cannot hope to anticipate the specifics of future crises with any degree of confidence. Thus it is important, indeed crucial, that any reforms in, and adjustments to, the structure of markets and regulation not inhibit our most reliable and effective safeguards against cumulative economic failure: market flexibility and open competition.