. . . so failure is culpable
It has long been our contention that the risk-management functions within the banks always knew the score. If evidence is needed, look no further than this solid GS presentation, which provides an excellent aide memoire for anyone interested in risk management. Non-execs of banks, please note.
It's dated 2009 but there's nothing here that couldn't have been written before 2007. Indeed, most of it was being practised in *ahem* Enron when I was, err, familiar with its goings-on a decade before that. You could almost say it wasn't rocket science, although one or two of the calculations involved actually are.
As far as an outsider can tell, Goldmans has always maintained these disciplines internally (whilst no doubt exploiting the hell out of counterparties who didn't). Oh yes, and they are doing very nicely, thanks.
So - why didn't the others ? Because - see GS slide 8 - the correct risk discipline requires explicitly recognising the cost of carrying risk, on the P&L. Lazy bankers would prefer not to be reminded of their risks in such a bonus-impacting manner. And of course it was no part of Gordon Brown's job as Chancellor to confront lazy bankers: "what I didn't want was for Britain to be outside the mainstream". The rest is history.
Take 'em out and shoot 'em, the lot.