Risk Management

During Thursday night's verbal drawing and quartering of CNBC's Jim Cramer by Comedy Central's Jon Stewart, the inevitable conclusion emerged: Long-term investing in the stock market is a sick joke. Stewart: "My mother is 75. And she bought into the idea that long-term investing is the way to go. And guess what?" Cramer: "It didn't work." Distill the last 16 months of financial hell down to one thought, and that would be it for millions of Americans. The U.S.

Quick -- you have one minute to answer this question: If you had to make a decision today to reallocate money in your 401(k) plan or other investment account, would you sell stocks to buy bonds or sell bonds to buy stocks? This isn't just an academic exercise, of course. With the dramatic resurgence of financial markets since March, millions of investors are staring at their portfolios with a mix of joy and apprehension. People who stayed put in stocks and bonds have recouped a huge chunk of what was lost in the September-to-March crash.

"Damn the torpedoes--full speed ahead!"--David Glasgow Farragut, at the battle of Mobile Bay, Ala. * "Risk management" is a popular business topic today. No executive wants to have bad things happen on his watch. The hordes of investors who have entered the stock market in the last few years expect ever increasing returns--no blips or hiccups. But a no-risk strategy often can prove to be a no-win strategy on both a personal and organizational level.

After a controversial nine-month paid leave, the former risk manager has returned to City Hall in a new job that will reduce her authority but not her salary. Erin Hoppe, placed on leave last September while the city audited her department and reviewed complaints, returned to work this week as the city's safety and claims manager. As risk manager, Hoppe oversaw all workers' compensation claims by employees.

Two key Los Angeles City Council panels backed away from several proposals Tuesday to improve the city's risk management policies, but lawmakers agreed to move forward on several fronts aimed at reducing police litigation costs. The Public Safety and Budget and Finance committees, which met jointly, agreed to establish a pilot program aimed at streamlining small property claims against the city.

Controls put in place by chief executives may be flouted by employees, which could mean that when a new product flops or a scandal breaks it may be too late for the executive to save the day. "Most [CEOs] are not effectively controlling risk, nor are they leading others in their companies to do so," according to a survey by Louis Harris & Associates Inc. for accountants Coopers & Lybrand.

A group of institutional investors, including representatives of the California Public Employees Retirement System and Pacific Telesis Group's pension fund, has drafted a set of proposed risk-management standards to help the industry avoid debacles like the Orange County bankruptcy and the collapse of Britain's Barings Bank. The 33 draft guidelines call for, among other things, fund investments to be "marked to market," or formally valued, with far more frequency than is now common.

It's an irony of the Information Age that at a time when more Americans have better access to larger amounts of knowledge than ever before, many are ill-informed about the true nature of the health risks we face. We need better leadership on this issue from the academic and research communities, the White House and congressional champions of science.

Maneuvering a nonprofit group through the maze of insurance issues is a dicey proposition. Although volunteers give their time out of benevolence, accidents do happen. Sometimes people have car accidents while volunteering. And on occasion, a board member might embezzle money from a charitable group or a volunteer might abuse a nonprofit organization's clients.

Investment firms do not have to spell out the risks of derivatives unless expressly asked to by investors in the complex securities, according to voluntary industry guidelines released Thursday. The guidelines could absolve brokers in the future of responsibility for a debacle such as Orange County's ill-fated foray into the risky investments.