Sessions: FIN302: MBAs are ruining the world

Let me start off by saying I have friends who are MBAs. Plenty. I know guys in Wharton at this very moment. I have beers with them when I can.

That being said, after sitting (or actually standing in the back corner) through the Monday afternoon session titled "A Buyer's Guide to the Risk Finance Bizaar," I am convinced that MBAs and their ilk of uber financial consultants, upper level management types and academics are ruining the world. Perhaps they already have.

Kevin Kelley of Lexington fame spoke about the $250 billion to $950 billion (perhaps trillion) loss that is expected to come from the financial meltdown in which we now find ourselves. He said that when you can't even calculate a CAT loss -- hence, the wide range of estimates to the loss -- how can you expect to know how well you're counterparties are faring in the mess ... and thus how can you know how exposed you are?

Whereas look at how the insurance industry handles its CATs -- there is certainty there. It might take the modelered and ISO a few weeks (or months) to come up with the final loss estimate, but right off the bat people can look at their insurance contracts and at least have a certain idea what they can expect. In that way, Kelley said, insurance is like the first responders, arriving on the scene of disaster with liquidity.

Can't say the same for other financial service institutions.

Their idea is to not lift up the rock to inspect the scum underneath it should everything be honky-dorey, should profits be rolling in and bonuses being doled out on Wall St, said Bill Panning of Willis, a former academic.

Panning talked about MBA text books that say there are two types of risk, the kind you don't want to do something about (the systematic) because it's a shareholder's job to diversify and protect himself from it, and the nonsystematic--the kind of risk you can't do anything about. Hence, academics teach MBAs that risk doesn't matter. Panning went on to say that these text books are being re-written to suggest that risk matters after all, as a matter of preference.

But has the damage been done? Can today's risk managers--armed with ERM--prove that risk matters, and that it can actually add value to an organization (rather than just consume resources)?

After all, risks are not like roaches, he said. Some risks are worth taking. Not all need to be stamped out.

Perhaps it's the MBAs, or the way they are taught to think, who are more like roaches. But like I said, I have plenty of friends who are MBAs. I'd hate to see them stomped on. I'm counting on them all to get very rich later on in their career and treat me to dinners and drinks.