Category Archives: Risk and risk management

Satyajit Das Weighs in on OTC Derivatives Proposals and Finds Them Wanting

For those who have not come across him, Satyajit Das is a hard core derivatives expert, having worked with them in enough markets and enough vantage points to very well versed, which in his case means thoroughly jaded. His book for laypeople, Traders, Guns, and Money. manages to be very informative, somewhat geeky, yet engrossing […]

More on why big capital markets players are unmanageable

Submitted by Edward Harrison of Credit Writedowns. Yves had a very good post yesterday called “Why Big Capital Markets Players Are Unmanageable” on banks: the former i-banks and commercial banks. The biggest takeaway for me came from her statements regarding the level of responsibility that a junior level employee in an investment bank can have. […]

More Puzzling Over Crisis Mechanisms

In case you haven’t figured it out, Ed’s post on Sweden highlights an important and troubling development. It seems that central banks have locked themselves into “if the only tool you have is a hammer, every problem looks like a nail” behavior with the move to negative rates. Since they are best able to dispense […]

Guest Post: Review of Pablo Triana’s "Lecturing Birds on Flying"

Submitted by Richard Smith: This is the Black Swan gospel according to Triana. Taleb endorses it in a characteristically incendiary and intemperate foreword. He does come out all guns blazing, and you just have to go with that. Or chuck a glass of water over him, if he’s in range, I suppose. A quick recap […]

Asymmetric information and corporate governance in bank bailouts

Submitted by Edward Harrison of Credit Writedowns. So, things are looking a lot brighter we are told by most economists and policy makers. The crisis is over and the banking system is on the mend. Now is the time for true reform and for bankers to get back to business as usual. While the foregoing […]

Guest post: Repayments will make banks weaker and could lead to more failures

Submitted by Edward Harrison of the site Credit Writedowns. Yesterday, I argued that allowing banks to repay TARP funds meant a continuation of overcapacity in financial services, which was a direct contributor to the credit crisis through its dampening impact on unlevered returns. Some of the banks now free of the TARP restrictions are arguably […]

Guest post: Ten big banks receive approval to repay TARP funds

Submitted by Edward Harrison of the site Credit Writedowns. If you thought the bailout of too big to fail institutions was a massive gift from taxpayers to captains of Wall Street, the news that TARP funds are being repaid should confirm your beliefs. Just today the U.S. Treasury has agreed to allow 10 financial institutions […]

Martin Wolf on the Need to Rein in Finance

I always enjoy reading the Financial Times’ editor, Martin Wolf, but I sometime forget how refreshing and pointed he can be when he decides to let loose at a deserving target. Today’s lesson is the almost ludicrous efforts of the financial services industry to explain why the debacle that they just foisted on all of […]

Taleb Presentation on the Fourth Quadrant

Nassim Nicholas Taleb gave a presentation in New York yesterday which hews closely to a recent piece of his, although his talk did include some additional interesting charts and anecdotes. The article is worthwhile, and worth your attention, but let me highlight the two things I found most interesting. First was his “fourth quadrant” construct. […]

On Good and Bad Financial Innovation

James Kwak, discussing a recent Bernanke speech defending financial innovation and a Ryan Avent post parsing it, underscored Avent’s observation that Bernanke had trouble coming up with an example of the sort that the financial services had in mind these days (ie, novel products making use of derivatives and other risk slicing, dicing, and distribution […]

Risk Management Sanity Check

To read Nassim Nicholas Taleb, you’d think that the entire world of finance was in thrall to evil Gaussian models and their cousins, like Black Scholes. The occasional howls from quants last year of 15 sigma and worse events would seem to confirm that view. Yet I have also seem some references here and there […]

Bank Stress Tests Now Officially a Garbage In, Garbage Out Exercise

We’ve had plenty of company in voicing doubts about the Treasury’s so-called stress tests of the 19 biggest banks. To quickly recap the main issues: The bank will run the tests themselves, using the same risk models that caused the mess. With only ten examiners on average per bank, and most of the banks having […]

Some Musings on Financial Innovation

There are two schools of thought on financial innovation. One is the mainstream view, repeated faithfully by a compliant media, that financial innovation is really really important and under no circumstances must be threatened. Then we have the Old Fart view, best represented by two men who by any standards ought to have retired by […]