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 […]
Read more...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 […]
Read more...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 […]
Read more...I must confess to being very late to read Nassim Nicolas Taleb’s The Black Swan, and frankly had considered NOT reading it. First, it has been so widely reviewed and discussed that I had assumed the additional knowledge to be gained by reading the book itself would be marginal. Second, I’ve read a bit of […]
Read more...Some readers may take issue with the headline, but bear me out. Within ten days of 1987 stock market crash, President Reagan established what was popularly called the Brady Commission to investigate the causes of the meltdown and recommend remedies. A little more than two months after it was created, the Commission submitted its report. […]
Read more...By way of background, William Black is a former senior bank regulator, best known for his thwarted but later vindicated efforts to prosecute S&L crisis fraudster Charles Keating. He is currently an Associate Professor of Economics and Law at the University of Missouri – Kansas City. More germane for the purpose of this post, Black […]
Read more...Just when you thought most of the bad news was out in the open, another ugly problem raises its head. Remember collateralized loan obligations? They last got press because investment banks were stuck with a whole bunch of them as unsold inventory, and their erosion in value was wreaking havoc on investment bank balance sheets. […]
Read more...As much as some optimists would like to find evidence of recovery, it is far more likely that the US will see a further deterioration in economic activity. We have not yet seen much in the way of bankrupticies and debt restructuring. Until this sort of thing becomes sadly routine, the bottom is not yet […]
Read more...We are supposed to be impressed with the speed and scale of government action on the bank front. As reported in the New York Times: Nearly 100 federal banking regulators descended on Citigroup in New York on Wednesday morning. Dozens more fanned out through Bank of America, JPMorgan Chase and other big banks across the […]
Read more...Churchill’s famous dictum, “Democracy is the worst form of government, except for all those other forms that have been tried from time to time,” could also be applied to mark-to-market accounting. However, like democracy, mark-to-market may be on its last legs. The stock market rally of late last week was fueled by the rumor that […]
Read more...The effort to get the second half of the TARP approved (or more accurately, not force Obushma to nix a Congressional turndown) is all feeling a bit Groundhog Day-ish, without the backdrop of a Lehman collapse and AIG implosion to add a sense of urgency and high drama. The officialdom is again using its access […]
Read more...Jon Danielsson has provided a great post at VoxEU (hat tip Independent Accountant) that calls into question the very premise of modern risk management, namely, that risk can be accurately quantified. This notion goes far further than the discussion of Value at Risk last the weekend keying off an article in the New York Times […]
Read more...The New York Times Sunday Magazine has a long piece by Joe Nocera on value at risk models, which tries to assess how much they can be held accountable for risk management failures on Wall Street. The piece so badly misses the basics about VaR that it is hard to take it seriously, although many […]
Read more...L’affaire Madoff continues to garner front-page coverage. Yet I find the stories peculiarly unsatisfying, since they are peeling the onion one layer at a time, failing to answer the questions I find most interesting: was his fund ever a legitimate operation, or was it a con from the beginning? And where did the money go? […]
Read more...Why is no one willing to call things by their proper names, and instead resort to euphemism and double-speak? A New York Times story today, “On Wall Street, Bonuses, Not Profits, Were Real,” makes its most important point in its headline, and managed to get some good data points on how rich investment bank compensation […]
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