“It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those transactions.” — Joseph J. Cassano, a former A.I.G. executive, August 2007, from NYTimes.com

As of now, the financial crisis causing havoc on many major stock markets looks to be well under way: all five of the big US investment banks are gone; one of the biggest insurers in the world is in deep trouble, and it’s probably fair to say there’s more to come yet.

Anyone can come up with any number of “reasons” behind this current mess, with the biggest excuses given being poor lending practices and a feeble housing market in the United States. Risk management keeps popping up as a factor in the collapse itself, and — based on my limited understanding of how risk management is done in these circles — would appear to me to be the major contributing factor.

It seems to me that the very people who need to understand this stuff, didn’t understand it as well as they thought they did, and made some assumptions that were plain wrong (and/or they didn’t recognise they were making). As a result a lot of investors are getting burned.

I don’t believe that the $700B bailout being discussed is the way to go, either: it seems to me that all it will do is prolong the pain, rather than putting a permanent stay on a correction that is probably well due.