The Occupy Wall Street movement going on in Manhattan’s Financial District and the Occupy [Insert City Name] protests it has spawned nationwide are rooted in the 2008 economic meltdown and subsequent government bailouts. Those were of course spawned by terribly flawed business practices of financial firms, perhaps most notably the “sure, I’ll insure that” stance taken by AIG. And as we all know, horrible risk management was a big part of that what led to the preceding years of flawed, reckless corporate behavior.

Now, people are cheesed off. They are not a monolithic group and have many other gripes about the environment, government spending, wealth distribution and so forth. But much of it certainly has to do with the collapse. The fact that the unemployment rate has been hovering just shy of 10% for more than two years certainly is the subtext for the rationale behind the why they are there and where they are.

And it doesn’t look like it will end anytime soon.

The mainstream press is just starting to cover this now, so many are still understandably in the dark about what is going on. Fortunately, Mother Jones has cataloged the happenings of the past few months in a nice little time line of the evolution of the Occupy Wall Street movement.

Read this to catch up and head over to the Mother Jones site to check out their map of the protest locations and an interesting infographic about income disparity.

• July 13: The Canadian magazine Adbusters makes a call to Occupy Wall Street.

• August 30: The hacktivist collective known as Anonymous releases a video answering the call and encouraging others to follow suit.

• September 17: Nearly 1,000 gather to protest corporate greed and begin occupying the financial district in New York City.

• September 19: Roseanne Barr is the first celebrity to lend support to the so-called NYC General Assembly.

• September 20: The NYPD starts arresting protestors for wearing masks, citing an arcane law that prohibits masked gatherings of two or more people with an exception: “a masquerade party or like entertainment.”  The police soon become more forceful.

• September 22: Demonstrators interrupt a Sotheby’s Auction, “in a show of solidarity with the art handler’s union that had been locked out.” This is the first instance of labor unions and the movement locking step.

• September 24: 80 protestors are arrested during a peaceful march; a video of a police officer pepper-spraying a nonthreatening woman goes viral.

• September 26: Anonymous allegedly leaks the name and details of the police officer who wielded the pepper spray.

• September 27: The Occupy Wall Street campaign comes out in support of postal workers who are protesting their reduced five-day work week.

• September 28: Transport Workers Union votes to support Occupy Wall Street; over 700 Continental and United Airline pilots demonstrate in front of Wall Street.

• September 30: More than 1,000 demonstrators march on NYPD headquarters, protesting the police response against the demonstrators.

• October 1: Over 700 demonstrators are arrested for marching across the Brooklyn Bridge and blocking traffic.

• October 5: Major labor unions endorse the movement and join in a march on New York’s financial district.

 

A new report from the Economist Intelligence Unit and Oracle Financial Services sheds further light on the elevation of risk management since the financial crisis. The general conclusion is similar to the one we have been hearing ad naseum since a failure of risk management tanked the global economy.

As stated in “Transforming the CFO Role in Financial Institutions:  Towards Better Alignment of Risk, Finance and Performance Management” (PDF):

In such a challenging environment, financial institutions must now devise a sustainable growth strategy and be better protected against new or emerging risks. To do so, many finance departments are recasting their business processes in an effort to provide better access to information for internal decision-making, risk management, financial reporting and regulatory compliance.

Blah blah blah. Same ol’, same ‘ol. Rhetoric and platitudes.

Right?

Maybe not.

This report, in addition to re-stating the need for better risk and finance alignment is actually speaking about evidence directly rooted in the bottom line. The execs surveyed are reporting that financial firms are more profitable when these two departments are in sync.

Financial institutions that benchmark themselves well on aligning their risk and finance functions also say they are doing better financially. Among survey respondents, of those who rank themselves much better than their peers at alignment between risk and finance, 60% are also much better at financial performance and 92% are above average. The equivalent figures for those who are average or worse at alignment are 8% and 32% respectively. The benefits are both specific, such as identifying potentially profitable clients, and general, such as providing a greater understanding of the global context in which major strategic decisions are made.

Those numbers seem substantial.

And this is not just a reality in 2011; this was the case all along. Those firms that prioritized risk management the most — not just rhetorically, but by paying big bucks for talented risk managers with decision-making insight — fared much better in 2008 than those that didn’t.

Research shows that at the 15% of US banks where the chief risk officer (CRO) was among the five highest-paid executives in 2006, the proportion of total assets made up by mortgage-backed securities at the time of the crisis was one-fortieth that of banks where the CRO was less well paid. There is even a correlation between higher CRO pay and lower stock volatility.

One-fortieth. That’s 1/40th. Or 2.5% if you prefer.

So you’re telling me that companies that committed to paid risk managers who they valued as decision makers to foresee, navigate through and mitigate pitfalls did much better in avoiding risks than those that didn’t? You don’t say?

For the past three years, we have repeatedly been saying that if this financial meltdown isn’t enough to move the needle on pushing risk management up the corporate hierarchy, nothing will be. But as more and more insight like this in unveiled, it’s hard to believe that companies can continue to ignore the obvious: risk management saves — and makes — money.

Regulators, politicians and bankers were to blame for the 2008 US financial meltdown, a report has claimed.

The US Financial Crisis Inquiry Commission, tasked with establishing the causes of the crisis, said it was “avoidable”.

Its report highlighted excessive risk-taking by banks and neglect by financial regulators.

Only the six Democrat members of the 10-strong commission, set up in May 2009, endorsed the report’s findings.

“The crisis was the result of human action and inaction, not of Mother Nature or models gone haywire,” the report said.

“The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand and manage evolving risks within a system essential to the well-being of the American public.

“Theirs was a big miss, not a stumble.”

The best part will be when nobody learns anything from this and it all happens again in like five years.

1. 9/11 – 2001
2. SARS – 2003
3. 2003 U.S. / Canada power outage – 2003
4. 2004 Indian Ocean earthquake and tsunami – 2004
5. Hurricanes Katrina, Rita and Wilma – 2005
6. Financial crisis – 2008
7. China earthquake – 2008
8. H1N1 pandemic – 2009
9. Iceland volcano – 2010
10. Floods in Europe and Pakistan – 2010

I have to admit, I would have probably completely forgotten the 2003 blackout if I was playing Family Feud and had to come up with all 10 — and I even wrote a cover story for Risk Management magazine about it.

Obviously, catastrophes that weren’t included like the Haiti earthquake, Cyclone Nargis and Bam earthquake were horrific tragedies, but the insurance penetration in those areas is so minimal that the ghastly human tolls did not have a large affect on the industry.

Let’s all dearly hope that the next decade is tamer.

Ninth Ward. New Orleans. Post-Katrina.

Some feel the government’s response to the financial crisis may hurt the U.S. economy in the long run. At least that’s what an independent watchdog at the Treasury Department warned. The problem is that the issues that spawned the financial crisis have not been addressed — it has been more than 15 months since the beginning of the downward spiral, and though promises of reform have been made, there has been nothing instituted that will help prevent another crisis from happening in the future. Neil Barofsky, the special inspector general for the troubled asset relief program (TARP) said:

“Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car.”

Since the $700 billion bailout by Congress, those financial institutions in the spotlight have grown even larger and have failed to scale back enormous executive pay. Some, including Barofsky, feel that because banks were bailed out in the past, they may take on even more risk, knowing the government will once again come to their rescue.

Barofsky also had some words concerning the government’s role in propping up the housing market:

“The government has stepped in where the private players have gone away. If we take government resources and replace that market without addressing the serious (underlying) concerns, there really is a risk of” artificially pushing up home prices in the coming years. The report warned that these supports mean the government “has done more than simply support the mortgage market, in many ways it has become the mortgage market, with the taxpayer shouldering the risk that had once been borne by the private investor.”

Many housing experts are worried that once the cash infusion from the government runs out, the housing market will taken an even harder hit than it already has. And though the financial aid the Obama administration has offered has helped the housing and financial markets tremendously, a correction of underlying problems is seriously needed, though it doesn’t look as though reform will take place any time soon.

The dates are tough to make out at this resolution, but the point here is the colors. Look at how even other recession years fall into the normal distribution bell curve while 2008, the lone red rectangle, sits nearly by itself alllllllllllll the way off to the left.

Scary stuff.

The data credit got clipped off, but the chart should read “Source: Axa”

• Allstate                                                                   
• Ameriprise Financial                                     
• Hartford Financial Services Group Inc.
• Lincoln National Corp.
• Prinicpal Financial
• Prudential Financial

According to Treasury Department spokesman Andrew Williams, those life insurers met the requirements for the Capital Purchase Program because of their bank holding company status.

Investors have been increasingly worried about the health of life insurers, which have been hit hard by worries about capital requirements and growing losses. A number of insurers that are also bank holding companies or thrifts have been eligible for funds from TARP since last fall. Last year, the Office of Thrift Supervision approved applications from Hartford and Lincoln to become bank holding companies, because of their planned bank purchases.

The bailout money is badly needed as insurers have seen their cash eroded by declining market value of securities they hold.

A number of insurers could use the money because they’ve suffered losses in the financial markets. The companies invest the premiums they collect and use the proceeds to pay out claims. Investment losses have led ratings firms to downgrade some insurance companies, making it more difficult for the insurance companies to borrow money and attract capital.

Also, because numerous companies provide retirement annuities, which gaurantee payments to retirees, a cash infusion is needed to hold the public’s confidence in these companies and the market in general.

The insurance sector got a boost this morning when news of the planned bailout sent shares skyrocketing for the insurance companies involved, but, unfortunately, not for the market as a whole.

“One outcome might be cost-cutting in risk management, which would be unfortunate,” said Cross. “We may be dealing with a situation where you have to do more with less.”

And as anyone who has ever tried likely already knows, you can’t do more with less; you can only do less with less.

The report went into more detail:

“Perhaps the most difficult risk management issue we face amidst this turmoil is ensuring that organizations remain committed to established, effective risk management strategies. Seeking short-term gains may restrict or reduce the long-term success of risk management programs. Risk controls, for example, should not be ignored for the sake of immediate expense cutting as they are essential to long-term cost mitigation.”

Following the threat of a deeper global recession on the list of top risks came some other familiar suspects, as well as a few concerns that didn’t even register in last year’s top ten. Here’s the full breakdown.

1. Economic Slowdown
2. Regulatory/Legislative Change
3. Business Interruption
4. Increasing Competition
5. Commodity Price Risk 
6. Damage to Reputation
7. Cash Flow/Liquidity Risk
8. Distribution or Supply Chain Failure
9. Third Party Liability
10. Failure to Attract or Retain Top Talent

In addition to tallying these results, Aon also asked companies how prepared they were for each of these risks. Shockingly, 60% said they were ready for the economic slowdown — something that sounded particularly dubious to Cross. “I was very surprised to see that 60% of people reported they were prepared for the economic slowdown because I’ve yet to meet this 60%,” said Cross. “If Warren Buffet lost $16 billion personally, I don’t know where these 60% of people are.”

To me, the realities of the economic slowdown are undeniable and even the most optimistic of economists seem to put the global recovery coming no sooner than early 2010. The inevitable and likely-soon-coming regulatory backlash from the financial sector meltdown, however, seems even more unpredictable. After AIG’s bonusgate plus the general populist outrage against everything from banks to carmakers, who really knows what Congress is going to draft?

Cross aptly summed up this fear. “It’s possible that the reaction may be over-reation.” Or as the report termed it:

“In the wake of the global economic crisis, an increase in regulation within the financial sector is widely anticipated; however, it is still unclear whether more stringent regulation will expand to other industry sectors. For multinationals, the cost, quantity and complexity of regulations presents serious challenges in terms of managing compliance with regulatory risks.” 

Cross’ co-panelist Theresa Bourdon, who serves as Group Managing Director of the Americas for Aon Global Risk Consulting, raised another interesting concern. “The risks for companies is the inability to comply with these regulations, ” she said. “If you don’t comply, the penalties can be severe…More importantly, there is a lack of market share and reputation.”

The panelists went on to discuss the new realities of supply chain risk and some emerging issues reported in business interruption. For even more info, read the full report.

And in other Aon-related news, you can also check out all the company’s RIMS 2009 events and activities over at its “Client World” website where the company is providing real-time updates from Orlando. You can also follow Aon live at RIMS 2009 on Twitter at @AonCorp.

More than 100 RIMS attendees helped clean up Give Kids the World Village at the Aon-sponsored RIMS Community Service Day on Sunday, April 19.