About Jared Wade

Jared Wade is a freelance writer and former editor of the Risk Management Monitor and senior editor of Risk Management magazine. You can find more of his writing at JaredWade.com.
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Southern California Gets a New Earthquake Plan

Southern California just got a little safer when it comes to earthquake preparedness. Along with FEMA, the California Emergency Management Agency today launched a new plan to help respond and recover from an earthquake.

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It was a long time coming, Southern California Catastrophic Earthquake Plan (CATPLAN) is now a reality.

When participants began the planning almost two years ago, rather than planning for a manageable event, the focus instead was on addressing the highest, most critical and widespread consequences of mass casualties, tremendous shelter and housing needs, infrastructure calamity and enormous economic disruption.  By facing the “unthinkable,” what has been developed is a realistic, flexible and scalable CATPLAN.

“We know that it’s not a matter of ‘if,’ but ‘when’ the next big earthquake is going to shake California to its core,” said Bettenhausen. “Our number one priority is to ensure we’re doing everything we can to be ready for it, and have a carefully-crafted, comprehensive plan in place to enable maximum coordination between federal, state and local agencies.

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  This plan is not the end, but another critical step in our on-going process of planning.”

The similar San Francisco Bay Area Catastrophic Earthquake Plan was formalized in 2008, so along with the new plan, the bulk of the state now has another layer of security.

All Californians should take some solace in that — although us on the East Coast will still question the sanity of those of you who build your houses above fault lines.

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WikiLeaks’ Next Target? Your Company

By now, I’m sure you’re familiar with WikiLeaks. (If not, read this good, introductory summary.) The whistle-blower company has released hundreds of thousands of documents about the wars in Afghanistan and Iraq and, just this week, it made headlines worldwide by unveiling a new torrent of documents related to U.

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S. foreign policy and diplomacy. (Here are the Daily Beast’s “9 Most Shocking WikiLeaks Secrets.”)

Predictably, the company and its founder Julian Assange are not very popular among federal and military officials in Washington, D.C., many of whom see the release of such confidential documents as paramount to a criminal act of espionage against the United States.

Amidst the political firestorm, Assange has said that WikiLeaks’s next target will not be political or military — but corporate.

In a rare interview, Assange tells Forbes that the release of Pentagon and State Department documents are just the beginning.

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His next target: big business.

Early next year, Julian Assange says, a major American bank will suddenly find itself turned inside out.

Tens of thousands of its internal documents will be exposed on Wikileaks.org with no polite requests for executives’ response or other forewarnings. The data dump will lay bare the finance firm’s secrets on the Web for every customer, every competitor, every regulator to examine and pass judgment on.

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Risk managers are always looking for emerging risks. And being able to see the threats that lurk beyond the horizon can be what separates the good from the great. A few years ago, it would be hard for anyone to see this peril looming.

But here we are.

For companies, the threat may be even greater than that posed to the government and the military. Those institutions have time-tested procedures of secrecy and multiple levels of confidentiality to ensure everything remains on a need-to-know basis. Sensitive information is obviously getting released by people who think it should be in the public record, but we can probably be pretty sure that there is plenty of even more restricted information known in the halls of the White House, Pentagon and Congress that has not — and will never be — exposed to the masses

Businesses, too, have protections to keep the perhaps-incriminating or at-least-embarrassing details of their operations from seeing the light of day. But the proliferation of digital information — data that can be accessed by both employees and cyber-savvy outsiders — makes everything harder to protect. Most companies don’t have Apache helicopters and M-16-toting soldiers to protect their servers.

So all it would take is one whistle-blower with access to severely damage the reputation of the company — and perhaps imperil the freedom of its less-than-lawful execs.

For what it’s worth, Assange’s freedom is once again being threatened by those he has angered. Attempts to shut down the site in the past have almost all failed, however.

We’ll see if the latest hornet’s nest he has kicked will lead to any different results, but my guess is that the business risk of exposure at the hands of WikiLeaks — and the other imitators that will inevitably surface — will not be dissipating any time soon.

The 5 Safest Places on Earth

Security is a critical component of risk management. If company employees and assets are not considered safe and sound, little else matters. Some locations take protection to the extreme, however.

Of course, many military facilities are incredibly hardened, of course, but there are a handful of other quirkier institutions (as well as one world-famous bank) that virtually guarantee their people and property are secure — both from manmade and natural threats.

Here is a list of those five safest places on earth.

5. Istanbul’s Earthquake-Safe Airport

2010 has been the year of the earthquake. The decade began with the devastating quake in Haiti that killed hundreds of thousands. Soon after, seismic activity in Chile, China, Mexicali and New Zealand rocked all regions of the globe.

If we can learn from an earthquake-proof airport in Istanbul, however, perhaps future quakes will be much less damaging than they have been throughout history.

The world’s largest seismically isolated building, the new international terminal at Istanbul’s Sabiha Gökçen Airport, is now complete and open for business.

Stretching across more than 2 million square feet, the terminal doesn’t sit directly on the soil, but rather on more than 300 isolators, bearings that can move side-to-side during an earthquake. The whole building moves as a single unit, which prevents damage from uneven forces acting on the structure.

Given that a massive, 7.4-magnitude temblor struck Turkey in 1999, killing some 17,000 and destroying billions of dollars worth of property, this seems like a great development in a city that geologists expect to see another major quake within the next few decades.

4. Bahnhof’s Underground Data Center

Swedish internet service provider Bahnhof set out to find a safe place for its data. For them, an old nuclear bomb shelter 100 feet below a mountain in Stockholm seemed safe enough. And its not just the ISP that thinks so.

The infamous Wikileaks has also moved some of its servers to the bunker that was built in 1943 and renovated in the 1970s to house governmental officials should catastrophe strike.

Apparently, the Bahnhof people are pretty happy to host Wikileaks in their ultra-secure bunker, safe from any political pressure and physical assaults. Wikileaks is under attack by the US government for the publications of many of its secrets. Most recently, Wikileaks released 100,000 internal military documents from the Afghanistan war.

Wikileaks has since unveiled a trove of documents on the current war in Iraq. Neither the company nor its founder, Julian Assange, are making any friend in the Department of Defense, but failing a full military assault on their servers, Wikileaks can at least rest assured that its computers are safe.

3. The Terror-Proof 7 World Trade Center

Along with the Two Towers, the nearby 7 World Trade Center building was also destroyed on 9/11. Unlike the larger structures, however, this one has been rebuilt. It maintains the original name, but when it comes to protection, this one will not be destroyed.

It has been hailed as the safest building in the world, its 52-stories of glass elegance belying a concrete core built to be a bunker in the sky. It is the first skyscraper to be completed at the World Trade Center site, and as it approaches its second anniversary, its innovative architecture and endlessly redundant security features – most of them designed from the lessons of the Twin Towers catastrophic collapse – offer a template for high-rise buildings in a post-9/11 world.

“The biggest change in high-rise construction now is this sealed, hardened core,” says Dr. Herb Hauser, president of New York-based Midtown Technologies, a firm that specializes in security technologies for buildings. “This means that the structure around the core can go down, or be on fire, or be invested with a biological or chemical problem, but the actual core itself will be protected.”

Many other buildings are now being designed and built with the new 7 World Trade as a model.

2. The Svalsgaard Doomsday Seed Vault

Deep beneath the ice of a remote, arctic Norwegian island lies humanity’s last hope to restore agricultural production if any worst-case scenario ever happens. From climate change and nuclear winter to global pandemic and asteroid strikes, humankind has little trouble envisioning any number of catastrophes that could qualify as extinction-level events. But this seed bank now houses the genetic code for all of the critical crops we would need to reboot civilization.

How secure it is? Well, here’s what I wrote about the Svalbard seed vault a few years ago.

Physically, it is virtually impervious to disaster. Earthquakes, such as the 6.2 magnitude quake that struck nearby in February, cannot damage the underground bunker as its steel and reinforced concrete structure is even strong enough to withstand a direct nuclear strike to the mountain. Time, too, will cause minimal harm-Global Crop Diversity Trust’s executive director Cary Fowler expects the vault’s life span to rival the Great Pyramid of Giza.
The vault uses a series of electric cooling units and enormous fans to maintain its constant zero-degree temperature. In the event of mechanical failure, however, its depth below the arctic permafrost would keep the vault cold enough to ensure adequate conservation for multiple years, even presuming the most drastic climate change-related temperature increases.
Human-instigated sabotage is almost equally unlikely. The remoteness of Svalbard, a Norwegian island chain located about 600 miles from the North Pole, is one of the seed bank’s greatest safeguards. The closest community to the vault, Longyearbyen, has a population of 2,000, which easily makes the sparsely populated mining community the metropolis of the archipelago. By contrast, the islands are home to an estimated 3,000 polar bears, which if the armed security guards, steel doors, air locks and video surveillance all fail, can presumably provide a final line of defense against would-be trespassers.

Physically, it is virtually impervious to disaster. Earthquakes, such as the 6.2 magnitude quake that struck nearby in February, cannot damage the underground bunker as its steel and reinforced concrete structure is even strong enough to withstand a direct nuclear strike to the mountain. Time, too, will cause minimal harm-Global Crop Diversity Trust’s executive director Cary Fowler expects the vault’s life span to rival the Great Pyramid of Giza.

The vault uses a series of electric cooling units and enormous fans to maintain its constant zero-degree temperature. In the event of mechanical failure, however, its depth below the arctic permafrost would keep the vault cold enough to ensure adequate conservation for multiple years, even presuming the most drastic climate change-related temperature increases.

Human-instigated sabotage is almost equally unlikely. The remoteness of Svalbard, a Norwegian island chain located about 600 miles from the North Pole, is one of the seed bank’s greatest safeguards. The closest community to the vault, Longyearbyen, has a population of 2,000, which easily makes the sparsely populated mining community the metropolis of the archipelago. By contrast, the islands are home to an estimated 3,000 polar bears, which if the armed security guards, steel doors, air locks and video surveillance all fail, can presumably provide a final line of defense against would-be trespassers.

I think it’s safe to say that, no matter what, we’ll always have seeds.

1. Fort Knox

Everyone knows that Fort Knox, the colloquial name for the U.S. Bullion Depository, is where the United States houses much of its gold. But did you know that the nearly 5,000 tons of precious metal valued at some $137 billion stored there is protected by a 22-ton door? Good luck getting through that.

The vault door, which has a combination that must be entered by some 10 different staff members — none of which know anything but their part of the code, is the crown jewel of a nearly impregnable fortress. And while this is a fantastic security measure, it’s not like anyone could ever get inside the building anyway, what with the tanks, Apache helicopters, armed guards, fences, concrete-lined granite walls, video surveillance and alarms that all safeguard the facility. It’s no wonder, then, that at the height of World War II, Fort Knox stored the Magna Carta, the Crown Jewels of the United Kingdom, the gold reserves of several occupied European nations, the Declaration of Independence and the U.S. Constitution. The Gettysburg Address and the Guttenberg Bible have both reportedly been protected inside Fort Knox as well.

Improving Ratings Agencies After the Financial Crisis

Within the financial sector and around the Beltway, credit ratings agencies took a pounding for their role in the financial crisis of 2008. While it was the mortgage lenders, banks and regulators who drew the most public scorn, many insiders spoke up to point out that, while the commercial interests of the lenders and bankers was understandable given that they were (irresponsibly) chasing profits and the regulators’ failings were understandable because they were … well … regulators, it was the theoretically independent and thought-to-be wise ratings agencies that really let down the market.

They continued to rate junk as investment grade, helping to maintain a status quo of insanity.

As this Wall Street Journal piece notes, at least one person saw this coming — 70 years ago.

Decades before anybody had ever heard of a mortgage derivative, an economist named Melchior Palyi predicted key causes of the 2008-2009 financial crisis with precision that makes a modern reader’s hair stand on end.

His warnings help explain why investors insist on trusting market gatekeepers they know to be fallible—such as policy makers, regulators and credit-ratings firms.

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The root of the problem, in Palyi’s eyes was that the 1936 reforms of the Banking Act mandated federal banks to only hold securities rated as investment-grad by at least two ratings firms.

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Many people have asked “how did these ratings agencies get all this power over the market?”

If you want to pinpoint one date, it was this one.

Mr. Palyi, then teaching at the University of Chicago, was a vocal skeptic from the outset. Looking back into the 1920s, he found that investment-grade bonds went bust with alarming frequency, often in the same year they were rated. On average, he showed, a bank that followed the new rules would end up with a third of its bond portfolio going into default

Decades before anybody had ever heard of a mortgage derivative, an economist named Melchior Palyi predicted key causes of the 2008-2009 financial crisis with precision that makes a modern reader’s hair stand on end.
His warnings help explain why investors insist on trusting market gatekeepers they know to be fallible—such as policy makers, regulators and credit-ratings firms.
The seeds of today’s problem were planted long ago, and its forgotten history holds important lessons. In 1936, as part of reforms under the new Banking Act, the U.S. government mandated that federally regulated banks could no longer hold securities that weren’t rated investment-grade by at least two ratings firms.
To determine how to implement the new policy, the government launched a massive project—with experts from the Federal Deposit Insurance Corp., the National Bureau of Economic Research and the Works Progress Administration—to study how credit ratings should be used.
Mr. Palyi, then teaching at the University of Chicago, was a vocal skeptic from the outset. Looking back into the 1920s, he found that investment-grade bonds went bust with alarming frequency, often in the same year they were rated. On average, he showed, a bank that followed the new rules would end up with a third of its bond portfolio going into default

The record was so unreliable that it would be “still more responsible,” Mr. Palyi growled, to “stop the publication of ratings altogether.” He was especially troubled that the new banking rules switched the responsibility for credit safety from bankers—and even bank regulators—to ratings firms.

“From there,” he warned, it “will have to be shifted again—to someone else,” presumably taxpayers. Liquidity, Mr. Palyi argued, was being replaced by what he scornfully called “shiftability,” a new kind of risk that could someday “be magnified into catastrophic dimensions.”

The whole WSJ piece on Palyi is interesting, so I encourage you to click through and finish the rest.

Meanwhile, now that we know ratings agencies are flawed, what can we do about it? Sheila Keefe offers an unfortunate yet poignant perspective: if not the ratings agencies, who else?

This knee-jerk reaction by Congress to limit the power of an industry that contributed to the meltdown ignores the need for independent credit-rating agencies. In the vacuum in credit rating information created by the Congressional, there are no other effective and efficient sources for evaluating investments.

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Since the passage of Dodd-Frank other credit-rating mechanisms have been discussed, and all of them seem to be either: (a) onerous to small investors and banks who lack the resources larger institutions possess or (b) eerily similar to the process and function previously filled by the credit-rating agencies.

As noted in the Wall Street Journal on November 16, 2010 in “Rating Firms Maintain Their Hold’: Among the possibilities being floated: having regulators gauge the risk level of individual assets, requiring banks to perform in-house assessments subject to oversight, or allowing firms to use a third-party ‘financial assessor’ to gauge the risk level of assets.

The reforms implemented by the credit rating agencies could be are a good start, and with additional regulatory efforts to ensure that credit rating agencies have processes in place to ensure that they are providing independent, sound advice, continued use of credit-rating agencies could be just what America needs to restore confidence in its capital markets.

Under this lens, it seems to be a damned-if-you-do, damned-if-you-don’t scenario.

But of course, there is a third way. Maintain the importance and the authority of the ratings agencies but also have a reformed, better regulatory system that can ensure things are not veering too far off the reservation. Some of the things Sheila mentions sound like a way to get there.

Now, as always comes the hard part — making it reality.