Category Archives: Risk and risk management

"NY Fed warns on hedge fund risk"

Oddly, this story, which runs in today’s Financial Times, does not seem to have been reported in the Wall Street Journal or the New York Times (and perhaps not on Bloomberg either, but I am less certain since its search tools for the great unwashed aren’t foolproof). The findings, at least for the Fed, are […]

The Fed: The Need for a Paradigm Shift

Due to Paul Volcker’s having broken the back of inflation in the early 1980s, and Alan Greenspan performing what appears to be adequately on the substance of his job and masterfully at the showmanship, the Fed’s reputation is at an all time high. And that in and of itself is a danger sign. The Fed’s […]

FT vs. WSJ on Financial Stability Report by Bank of England

While most US readers believe that the Journal’s ideological bias is limited to its editorial pages, we have repeatedly seen (and commented on) skewed reporting as well. Specifically, the Journal tends to put a positive spin on economic (as opposed to company-specific) reporting. Today’s object lesson is the Bank of England’s latest edition of its […]

"Leveraged loans risk copying subprime – Fink"

In an interview with the Financial Times, Larry Fink, the CEO of BlackRock, one of the world’s largest fund management groups, warns of burgeoning risk in the leveraged loan market, arguing it has the potential to go the way of subprimes, and urges the Fed to take interest. Now this story has more significance than […]

Risk Management Guru Warns About Brave New World of Finance

It’s one thing when people who have little to no experience in the financial markets worry about the risks posed by derivatives and other innovative financial products. It’s quite another when a concerned individual also happens to have been deeply involved in risk management at major Wall Street firms. The financial markets insider is Richard […]

An Excellent Primer on Risk Management (and Its Shortcomings)

John Kay in the Financial Times gives the best layman’s explanation I have seen of the most widely used risk management approach in financial institutions, value at risk (VAR) and tells us what’s wrong with it. In a nutshell, VAR assumes a normal distribution of events (aka a bell curve). The problem is that prices […]

LBO Chief Warns of Coming Debt Crisis

You seldom hear language like this from anyone in the deal community, particularly a borrower. But Steve Rattner, head of Quadrangle Partners, sees himself as not just your average LBO maven, but also a thoughtful Democrat (he was expected to get a post in a Kerry administration). But also notice that his comments in a […]

Valuations: Another Reason to Worry About Hedge Funds

As we’ve pointed out, if one is the worrying sort, hedge funds give plenty of reason to concentrate the mind. It’s not just that they are highly leveraged, unregulated, big, and getting bigger. The Fed has also admitted it doesn’t know what they are up to, which means their reassurances aren’t fact based (how can […]

"Unwinding the Fraud for Bubbles"

This is a great post by Tanta at Calculated Risk on the classic types of mortgage frauds and how they morphed into new forms due to a unique confluence of buyer naivete and broker/originator greed (oh, and sometimes buyer greed too). She clearly discusses recent versus traditional procedures. Tanta lays considerable blame at the lending […]

"Toothless Fed"

The post below is from a reader, DS. He focuses on the fact that the Fed has basically admitted that its powers are limited due to the extent of financial activity that takes place outside its purview (the Fed supervises federally-chartered banks; securities firms, which are regulated by the SEC and hedge funds, which are […]

Is Financial Innovation Really As Beneficial As It’s Supposed to Be?

A post from a reader, “Toothless Fed,” argues that the latest wave of financial innovation has produced “profit grabs” by the few at the expense of the many, Ponzi schemes, and an erosion of traditional values like prudence. Overheated? Overwrought? Perhaps. Or maybe he’s just calling a spade a spade. Other people are coming to […]

Toothless Fed, Part 2 (Risk Management Shortcomings)

Forgive us if we seem to be picking on New York Fed president Timothy Geithner. Actually, not that we know him, but he has a reputation (by Fed standards) for candor. So the problems we have with his speech should not be seen as an attack on him, but on the increasing difficulty of the […]

Toothless Fed, Part 3 (The Ghost of LTCM)

Most sophisticated financial people I know take great comfort from the happy resolution of the LTCM debacle. As you may know, LTCM (Long Term Capital Management) was a hedge fund created by John Meriwether, a star trader from Salomon who headed its highly profitable bond arbitrage group, and included two Nobel prize winners among its […]

New York Fed President Timothy Geithner’s Not-So-Reassuring Speech

Compared to other Fed presidents, Timothy Geithner is straightforward and more than usually willing to talk about bad things. So when he gives a speech that is comparatively upbeat, as he did earlier this week (“Credit Markets Innovations and Their Implications“) it should be reassuring. So why did this speech bother me? It wasn’t as […]

Collateralized Debt Obligation Market Looks Shaky

The financial press has fretted that the problems in the subprime market may spread to other parts of the mortgage market. While defaults and delinquencies aren’t contagious, investors can get nervous and decide they may have been overly optimistic about risks in safer parts of the market. But the next likely casualty isn’t higher grade […]