Wednesday, November 7, 2012

Election Results: Unexpected Risk?

Private corporations are notorious for lobbying the government to swing policy in their favor. According to the Eric Lamarre and Martin Pergler in the article “Risk: Seeing around the corners” managers often fail to anticipate all of the cascading effects of risk. It is unclear if this principle holds to the impact of politicians being elected into office and just how far these shocks can hit.

In the Wall Street Journal this morning an article by William Alden discusses what Wall Street has to fear now that Elizabeth Warren has won the Massachusetts Senate seat away from Scott Brown. Warren is a strong supporter of greater regulation in the financial sector and this could have many implications for big banks. While republicans were able to block any potential that she become an appointee, how much influence will she able to hold as a senator? Furthermore, how can these risks actually be calculated?

Throughout history we have seen unexpected politicians end up having a huge amount of power on legislation and therefore a great deal of impact on the private sector.  As pointed out in the reading, these effects can be seen in all sorts of ways. Trading regulations, free trade agreements, tariffs, etc. can have impact on resource costs, productivity, distribution or even customer response.
The direct risks of Elizabeth Warren’s election are somewhat clear: regulation could get stricter, regulatory agencies could remain fully funded, and investigations of big corporations will continue to be supported. What will be interesting to see is what can of impact can one senator have on indirect and unexpected risk.

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