Money and Finance
- John Mauldin: Uncertainty And Risk In The Suicide Pool
For the past 80 years, we have created ever more sophisticated models of risk in the economic and investment worlds. With each new tool we create to measure risk, we seem to think we have somehow gained more control over our future. Paradoxically, we...
- How To Prevent Other Financial Crises – By Nassim Nicholas Taleb And George A. Martin
This article argues that the crisis of 2007–2008 happened because of an explosive combination of agency problems, moral hazard, and “scientism”—the illusion that ostensibly scientific techniques would manage risks and predict rare events in spite...
- Nyt: End Bonuses For Bankers - By Nassim Nicholas Taleb
I HAVE a solution for the problem of bankers who take risks that threaten the general public: Eliminate bonuses. More than three years since the global financial crisis started, financial institutions are still blowing themselves up. The latest, MF Global,...
- Is The Sec Fighting Last Year's War?
Thanks to Max for passing this along. Richard Bookstaber, veteran Wall Street risk manager and hedge fund manager, made a splash on the eve of the financial meltdown with the publication of Demon of Our Own Design, a book that warned the markets had grown...
- Investing Lessons From Golf And Blackjack Players
The Lehman bankruptcy, which occurred a year ago today, was the nadir of a financial crisis brought on by excessive risk-taking throughout the investment industry. Naturally, reigning in risky behavior has been in vogue since, and regulators are hard...
Money and Finance
Clouds Seen in Regulators’ Crystal Ball for Banks
Five years ago, the financial regulators of the United States — and more broadly the world — didn’t see the storm coming.
Would they if a new one were brewing now?
The answer to that is far from clear. The regulators have more information now, and they have applied the tools they have to measure risk with more vigor.
But a new assessment from a little-known agency created by the Dodd-Frank law argues that the models used by regulators to assess risk need to be fundamentally changed, and that until they are they are likely to be useful during normal times, but not when they matter the most.
“A crisis comes from the unleashing of a dynamic that is not reflected in the day-to-day variations of precrisis time,” wrote Richard Bookstaber, a research principal at the agency, the Office of Financial Research, in a working paper. “The effect of a shock on a vulnerability in the financial system — such as excessive leverage, funding fragility or limited liquidity — creates a radical shift in the markets.”
Mr. Bookstaber argues that conventional ways to measure risk — known as “value at risk” and stress models — fail to take into account interactions and feedback effects that can magnify a crisis and turn it into something that has effects far beyond the original development.
- John Mauldin: Uncertainty And Risk In The Suicide Pool
For the past 80 years, we have created ever more sophisticated models of risk in the economic and investment worlds. With each new tool we create to measure risk, we seem to think we have somehow gained more control over our future. Paradoxically, we...
- How To Prevent Other Financial Crises – By Nassim Nicholas Taleb And George A. Martin
This article argues that the crisis of 2007–2008 happened because of an explosive combination of agency problems, moral hazard, and “scientism”—the illusion that ostensibly scientific techniques would manage risks and predict rare events in spite...
- Nyt: End Bonuses For Bankers - By Nassim Nicholas Taleb
I HAVE a solution for the problem of bankers who take risks that threaten the general public: Eliminate bonuses. More than three years since the global financial crisis started, financial institutions are still blowing themselves up. The latest, MF Global,...
- Is The Sec Fighting Last Year's War?
Thanks to Max for passing this along. Richard Bookstaber, veteran Wall Street risk manager and hedge fund manager, made a splash on the eve of the financial meltdown with the publication of Demon of Our Own Design, a book that warned the markets had grown...
- Investing Lessons From Golf And Blackjack Players
The Lehman bankruptcy, which occurred a year ago today, was the nadir of a financial crisis brought on by excessive risk-taking throughout the investment industry. Naturally, reigning in risky behavior has been in vogue since, and regulators are hard...