Recently there have been a great deal of interest among financial analysts in ornithology, specifically black swans. This is due to a book by Nassim Nicholas Talebs best-selling book Black Swans. When Europeans explored Australia, they were surprised to find black swans, something they did not think existed. The idea was that past experience in markets does not always predict extreme and rare situations that can create panic and disaster.

The point about black swans is not that they were unique; it is simply that the Europeans did not know about them. The same is true of the credit crises. The issue is not the rarity of the event but the quality and the availability of information. The present subprime crises occurred because securitization changed the economic incentives for lenders. Since it was no longer necessary to keep a loan on their books, their economic incentive was to make as many as possible without regard to quality. They lost the economic incentive to get and update information. As George Soros put it, "Securitization had the effect of transferring risk from people who are supposed to know risk and know the borrowers to people who don’t."

The problem with any management model is that it is based on the information put into it. If there are economic incentives to provide bad, late or incomplete information to the markets, problems will occur. There are enormous economic incentives in both developed and emerging markets to obfuscate, spin or simply lie. No set of regulatory regimes can provide sufficient legal disincentives to solve the problem even in the most open law abiding markets. They do not exist in others. As Warren Buffet points out, "If I cannot understand an annual report, perhaps someone does not want me to".

The point for risk managers is not that the numbers or models do not accurately forecast rare events. It is that obtaining and understanding accurate and complete information is in itself a rare event. It’s not the unexpected that causes trouble. It’s what is ignored, unavailable or untrue.