Our colleague Susan Webber’s article, “The Dark Side of Optimism” is the cover story in the current issue of The Conference Board Review. It discusses the deep roots of optimism and how it can undermine critical thinking and accurate risk assessment. Her piece is wide-ranging, looking at psychological research, cognitive biases, cultural icons, military history, […]
Read more...Those of us who have an eye for trouble have been nattering about the credit default swaps market from time to time. This $46 trillion unregulated market has suddenly captured the imagination after AIG reported in an 8-K filing that it had certain weaknesses in its internal controls and that the value of its credit […]
Read more...Some have taken notice that investment banks are much more cavalier with other people’s money that they are with their own dough. We’ve gone further in earlier posts, saying that investment banks shouldn’t be public companies (scroll towards the end). A Bloomberg article points out the obvious: the Street has sustained losses unimaginable in the […]
Read more...A Bloomberg story today points out that the snowballing credit market crisis is an indictment of the use of quantitative measures of risk, particularly one of the longer established and still widely used approaches, value at risk. VAR uses historical trading patterns to determine the probability of loss to a certain percentage of certainty. Firms […]
Read more...Disclosure (or apparent disclousues, who knows if we will ever learn the true story) of how equity derivatives trader Jerome Kerviel caused the biggest trading loss in banking history continues to dribble out. Today, Bloomberg in “Societe Generale Says Trader Built Up Positions of EU50 Billion,” gives more detail on how the trader caused so […]
Read more...Michael Lewis, of Liar’s Poker fame, gives an elegant explanation of why Goldman got its subprime position right when everyone else on the Street was disastrously wrong. And I mean elegant in the mathematical sense: it fits known facts and has few moving parts. As Lewis tells it, Goldman did not use the largely impotent […]
Read more...After bond fund giant Pimco’s Bill Gross gave a back-of-the-envelope estimate of a possible $250 billion in losses resulting from the impact of deteriorating corporate credit and bond defaults on the $45 trillion (notional amount) credit default swaps market, other commentators have been making improved (but still quick and dirty) calculations. One interesting effort appears […]
Read more...Wolfgang Munchau provides nice succinct overview of some of the recent debate surrounding a source of financial system risk that has suddenly captured the popular imagination: credit default swaps. For those new to the concept, credit default swaps are effectively insurance. A protection seller (think insurer) takes the risk of default on a reference entity […]
Read more...I usually rely on public information, but I’ve had two not-so-public (well, one is public but second-hand) data points converge, and they are consistent with the MSM information on the matter at hand, namely, how Morgan Stanley came to post a $9.4 billion loss on the actions of one trading desk, which in turn led […]
Read more...These days, a mere $1 billion writedown is such an penny-ante event as to not merit much interest. Indeed, what made the fact that Swiss Reinsurance Co., the world’s biggest reinsurer, lost that much on mortgage related derivatives noteworthy was the fact that it was engaged in that activity at all. It turns out the […]
Read more...Before I raise your expectations unduly, I am not saying that Ben Stein’s entire “Everybody’s Business” column today is intelligent. However, this week’s piece, “It’s Time to Act Like Grown-Ups,” had some sensible moments, and I want to give Stein his due on those infrequent occasions when it is merited. I am not parsing the […]
Read more...Royal Bank of Scotland estimated that investment banks will be forced to take $100 billion in writedowns as a result of the implementation of new accounting rules that restrict their latitude in valuing financial instruments that cannot be priced readily. Citigroup alone has $135 billion in so-called Level 3 assets, and that number rose by […]
Read more...Various analysts and reporters took keen interest in Citigroup SEC filing Tuesday that revealed that the bank had deployed $7.6 billion of a total $10 billion liquidity facility to assist its floundering structured investment vehciles (SIVs), but stated it does not believe it has to consolidate the SIVs. CreditSights estimated that Citi’s losses on asset […]
Read more...The New York Times has an odd piece today, “Where Did the Buck Stop at Merrill?” which seeks to determine whether the unexpectedly $8.4 billion third-quarter writeoff was not just former CEO Stanley O”Neal’s failing, but also one of Merrill’s board. Another shoe may be about to drop, since the Wall Street Journal claimed that […]
Read more...PhysOrg.com reports on the results of a study funded by the National Science Foundation which looked into why people decide to live in homes in risky places, like coastal Florida and areas where wildfires are common. Answer: “the emotional benefits interfere with their ability to assess the risks.” What is surprising it that this finding […]
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