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Managing Extreme Financial Risk by Karamjeet Paul

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Chapter 16

Critical Factors in Preparing for an Extreme Financial Crisis

A former senior executive who wishes to remain anonymous

Abstract

The unprecedented scope of depth and breadth of the 2008 crisis resulted from the unprecedented concentration of exposure from tail risk that was missed for many reasons. A brief review of AIG's timeline from March 2007 through September 2008 highlights how basic some of these reasons were. Sound human judgment, readiness, and control through simplicity to counter complexity are key factors that impact an institution through a financial crisis. Senior executives and board members must develop an understanding of critical issues—related to both upside as well as downside—to exercise sound judgment, which ...

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