Monthly Archives: February 2013

An Asteroid Is Coming. Don’t Panic

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Not to worry anyone, but tomorrow, an asteroid is headed our way. According to astronomers, there is no danger of it hitting the planet, but it will actually end up being closer to us than any asteroid ever observed. NASA estimates that at about 2:24 EST, Asteroid 2012 DA14, as it has been named, will be only about 17,200 miles from the Earth. It sounds like at lot, but to give you an idea of how close that is, satellites that are in geosynchronous orbit are 22,245 miles above the planet. So this 150-foot diameter space rock will come even closer than that while traveling at speed of about five miles per second. (Thankfully, no other satellites are in its path since they orbit much closer to Earth — the International Space Station, for example, orbits at an altitude of 240 miles.

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According to NASA, however, little DA14 could have made quite an impact if it made a direct hit:

Asteroid 2012 DA14 will not impact Earth, but if another asteroid of a size similar to that of 2012 DA14  were to impact Earth, it would release approximately 2.5 megatons of energy in the atmosphere and would be expected to cause regional devastation.
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A comparison to the impact potential of an asteroid the size of 2012 DA14 could be made to the impact of a near-Earth object that occurred in 1908 in Tuguska, Siberia. Known in the asteroid community as the “Tunguska Event,” this impact of an asteroid just slightly smaller than 2012 DA14 (approximately 100 – 130 feet) is believed to have flattened about 825 square miles of forest in and around the Podkamennaya Tunguska River in what is now Krasnoyarsk Krai, Russia.

Evidently this sort of thing is not unheard of.

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Scientists at NASA’s Near-Earth Object Program Office estimate that an asteroid the size of 2012 DA14 flies this close every 40 years on average and that one will impact Earth, on average, about once in every 1,200 years.
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But this time, we’re safe. Not even cell phones will be affected. So scientists will have a ball and we can breathe easy.

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No need to alert Bruce Willis.

And if you want to check out the asteroid as it goes by, there are quite a few sites that are providing live streaming of the event. Go science.

OSHA: Unnecessary or a Life Saver?

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While some feel the Occupational Safety and Health Administration (OSHA) is a necessary agency with its proof of necessity being the lives it has saved since its inception in 1971, others feel that it’s just a wasteful regulatory nightmare. Compliance and Safety breaks it down in infographic form:

First, the good:

And now, the not-so-good:

As with everything, there are two sides and, in this case, each side states a strong case. Which side are you on?

Are Banks Reassessing Risky Practices in Wake of Libor Scandal?

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Yesterday in London, executives of the Royal Bank of Scotland testified in front of a Parliament commission of banking standards. The topic at hand was of course the much-publicized Libor rate-rigging scandal that cost RBS more than $600 million in fines from the UK’s Financial Services Authority, the U.S. Commodities and Futures Trading Commission, and the U.S. Department of Justice.

In the hearing, CEO Stephen Hester was quick to note that the scandal was the product of unscrupulous behavior by the firm’s employees. “The behavior was the disgraceful failure of individuals,” testified Hester. But he also didn’t hide from the fact that his company failed to detect the rate rigging. “We were slow to recognize that behavior and catch it,” he said at the hearing.

The FSA’s director of enforcement and financial crime, Tracey McDermott, put it a little more strongly. “During the course of the FSA’s work on Libor, RBS provided the FSA with an attestation that its LIBOR related systems and controls were adequate,” said McDermott in statement. “This was not correct. The FSA takes it very seriously when firms tell us they have appropriate systems but do not.”

McDermott went on to point out the effect that all this has on whole investment banking sector. “The extent and nature of the misconduct relating to Libor has cast a shadow on the reputation of this industry, and we expect firms to take steps to ensure that this can never happen again. This is the third penalty we have imposed in relation to Libor-related misconduct. The size and scale of our continuing investigations remains significant.”

John Hourican, who headed RBS’s investment banking division before resigning last week, said that the taxpayer-bailed-out bank was on “cardiac arrest” given all the troubles that began in 2008, so it had to “prioritize dealing with the existential threat to the bank.” That is what may have led to the breakdown in controls that subsequently led to the rate rigging going on under management’s nose.

The company was simply too busy dealing with other, more-pressing threats to pay any attention to what a rate-rigging possibility that some in the bank considered an impossibility.

According to a Wall Street Journal report, former investment banking head John Cameron believes this left the company exposed to a type of behavior not unexpected of traders.

RBS’s former head of investment banking, Johnny Cameron, who left the bank in early 2009, said traders at banks involved in the attempted rate manipulation had more in common with each other than other bank workers, and that their behavior seemingly had little to do with the firms they worked for.

It is “as much about the culture of traders and people who trade things than any bank,” Mr. Cameron said in his testimony to the committee.

He said RBS’s risk managers failed to recognize the potential for traders to influence submissions used to help set interest-rate benchmarks, and that the failure highlighted why traders need “tight and close management.”

“I do think that traders have a particular approach to life and need much tighter controls. By and large, those controls are imposed. What happened in this case was that the risk managers didn’t recognize this as a risk, and those controls were not there,” Mr. Cameron said.

In short: traders are going to be traders and somebody needs to be watching them — but, in this case, nobody was.

Perhaps that vulgar reality about the banking world is what is motivating two other financial sector giants to move away from some of their riskier trading activities, according to the New York Times blog Dealbook.

First, it has this to say about Barclay’s recent decision to lay off 3,700 employees.

Barclays announced a major restructuring that will eliminate 3,700 jobs and close several business units, as the bank reported a big loss in the fourth quarter of 2012.

The overhaul of its operations comes after a series of scandals at the bank, including the manipulation of benchmark interest rates, which led to the resignation of the firm’s former chief executive, Robert E. Diamond Jr.

In a bid to reduce its exposure to risky trading activity, Barclays plans to close a number of operations in Europe and Asia, including a tax-planning unit that has been criticized for tarnishing the firm’s reputation.

“There will be no going back to the old way of doing things,” the chief executive, Antony P. Jenkins, told reporters at a news conference in London on Tuesday. “We will never be in a position again of rewarding people for activities inconsistent with our values.”

Then, Dealbook notes the following regarding UBS’ decision to part ways with the former head of its investment banking.

Carsten Kengeter, the former head of UBS‘ investment bank, has been on the outs at the Swiss banking giant for some time. On Tuesday, the bank announced that he was resigning.

Mr. Kengeter has been head of the bank’s non-core division, which oversees the assets that the bank is hoping to unload as it tries to exit higher risk banking activities.

But when he was running the investment bank, Kweku M. Adoboli, a trader in the London office, was accused of authorized trading that led to a $2.3 billion loss for the bank. Mr. Adoboli  was eventually found guilty of fraud and sentenced to seven years in prison.

The trading loss raised serious questions about the firm’s oversight and led to the resignation of  Oswald J. Grübel, the chief executive of UBS. Also during Mr. Kengeter’s time at the investment bank, UBS became ensnared in an investigation into the manipulation of the global interest rate benchmark Libor, or the London interbank offered rate.

There may be no direct thread running through these announcements.

It could all be a coincidence.

But as regulators continue to scrutinize those who fail to detect the risky, illicit behavior of those working within their firms, it seems as though some banks are starting to embrace the risks of their core business over those that are more difficult to oversee.

The Growing Problem of Supply Chain Risk

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As the modern business world becomes more and more sophisticated, so too do the supply chains on which organizations rely. And as these supply chains have become more sophisticated and intertwined, the risk of possible problems has grown.

A recent report by Deloitte states that “Because of the importance of supply chain management to companies’ success, supply chain risk events are having a profound effect and becoming more costly.” The consulting firm surveyed 600 executives at manufacturing and retail companies to understand their perceptions of the causes and affects of supply chain risks. Some of the key findings include:

  • Supply chain risk is a strategic issue. There are now more risks to the supply chain and risk events are becoming more costly. As a result, 71% of executives said that supply chain risk is important in strategic decision making at their companies.
  • Margin erosion and sudden demand changes cause the greatest impacts. The most common and the most costly outcomes of supply chain disruptions are erosion of margins and an inability to keep up with sudden changes in demand, which illustrates the extent to which the supply chain risk issue affects the “heart of the business.”
  • Most concern about extended value chain. Executives surveyed are more concerned about risks to their extended value chain—outside suppliers, distributors, and customers—than about risks to company-owned operations and supporting functions.
  • Supply chain risk management is not always considered effective. Two thirds of companies have a supply chain risk management program in place, but only half the surveyed executives believed those programs are extremely or very effective.
  • Companies face a wide variety of challenges. Executives cited a wide variety of challenges including problems with collaboration, end-to-end visibility, and justifying investment in supply chain risk programs, among others. However, no single challenge stood out, indicating the need for broad approaches.
  • Many companies lack the latest tools. Current tools and limited adoption of advanced technologies are often constraining companies’ ability to understand and mitigate today’s evolving supply chain risks.

What’s alarming in this report is that even though companies are taking a proactive approach to managing supply chain risks, only about half of the executives surveyed believed their companies are extremely or very effective at managing supply chain risk, including just 13% who considered their companies to be extremely effective. However, when asked which strategies have been most effective, executives most often cited building stronger relationships, building business continuity plans and developing the ability to quickly adapt the production or distribution network.

In all, however, Deloitte’s survey did not reveal the most positive news for companies and how they manage supply chain risk. But if anything, executives can use this information to better understand the weaknesses in today’s supply chain environment. As we’ve seen with past catastrophes and economic troubles, the chain is complex and ever-evolving. Keeping up with changes and eliminating the affect of events is what true supply chain resiliency is.