The Common Factor in 9/11, Katrina and Foreclosure Crisis

The common factor in 9/11, Hurricane Katrina and the present foreclosure crisis is lack of risk management. All three show up how the risk factor, whether man-made or natural, has not been managed by those in power and accountable for these lapses, commented Michael Chertoff of Homeland Security.

At a recent seminar he pointed out how regulation, in modest doses, can lessen the risk in the marketplace. Managing risk, he said, is “maybe the fundamental social problem that we face in the 21st century.” He went on to add, “Our mission is very broad – it covers everything from preventing and reducing our vulnerability to terrorist attacks, to protecting and reducing of vulnerabilities of our infrastructure, including our cyber-infrastructure, and then mitigating the consequences of disaster by strengthening our preparedness and response.”

The present foreclosure related crisis is no less serious (if not more) than the 9/11 attack. All three – 9/11, Hurricane Katrina and the foreclosure crisis show that the authorities have been caught on the wrong foot and not been able to handle the risk factor properly.

The 9/11 was not something totally unexpected, as the intelligence bodies had known for many years Laden’s intentions. Report after report had poured in about the necessity of strengthening the security of America’s homeland. But not even a fraction of the required investment was made before 11th September. The risk was totally misjudged.

In the same way the officials knew how disastrous a hurricane could be to a city – especially one that is well below the sea level. Here again it is clear that the government failed to spend the required amount towards strengthening the basic infrastructure like the levies. The price had to be paid by the victims of New Orleans.

The same is true of the ongoing foreclosure related credit crisis. From the 1990’s the pundits had seen the writing on the wall and given the warning. Chertoff categorically stated, “We have not managed to address the risk in a way that prevented what was … a (financial) disaster of the magnitude of a natural disaster and a terrorism disaster.”

In each of the three instances the officials reacted after the disaster struck. It proved to be much costlier than it would have been if steps had been taken earlier. Managing risk is about looking forward and not backward. It not only reduces the cost factor but also the human agony as is evident in the ongoing foreclosure crisis and reo homes increase. Why was it allowed to happen?