Financial executives and financial regulators sometimes agree to ignore facts whose overt recognition would precipitate a crisis. They use accounting facades to do this. The financial firm may also be jeopardized by executive self-deception. Two forms of this are optimistic biases and failure to canvas market alternatives adequately. The top executive officer may also exhibit a pattern of ever-accelerating risk-taking, resulting in "turbo-deterioration" of the firm, or the firm may be so organized as to induce imprudent risk-taking at subordinate levels. Facades and self-deceptions pose important, unresolved issues of public policy and financial regulation.
- © 1987, The Regents of the University of California