Free trade and localism

Felix Salmon has a good post on the problems of classical free trade thinking when applied to food: In a Ricardian world it makes sense for Ohio to overwhelmingly grow corn and soy, since growing corn and soy is what it does best. And because of economies of scale, it makes sense to grow just […]

Mortgage innovations: stability vs. populism

A good lesson in finance is to sell what you can hedge. That is, a guiding principle in product design is to produce a structure that leaves your book looking good, either because it hedges risk you have already, or because you can find a liquid hedge instrument with no nasty basis risks or unquantifyable […]

Quants, Lightbulbs and the Demise of the Financial System

From Naked Capitalism reader Matthew G: How many quants does it take to screw in a lightbulb? Using ten racks of co-located blade servers, one quant can detect a janitorial inefficiency, step in between janitor and light fixture, and screw in 49,500 bulbs in less than a millisecond, keeping five hundred lightbulbs of profit. Two […]

Authenticity in German Street Names

Matthew Lynn writes for Bloomberg: President Barack Obama has taken a sledgehammer to the model that Wall Street investment banks have created over the last three decades. And yet, as is always the case in business, one man’s misfortune is another man’s opportunity. If Europe plays this right, it could establish its banks and financial […]

Who is liable if neither of you understand the trade?

At Jack on tap we find: Generally speaking and contrary to popular belief, caveat emptor is not a well-established legal principle… Professionals in other fields have many avenues of recourse when they are sold a defective product—just because you’re an expert doesn’t mean you’ve disclaimed all warranties (if this wasn’t true, we wouldn’t need lawyers). […]

Beware Greek bearing bonds?

Evidently not. From the FT: Greek stocks and bond markets surged on Monday as investors flooded the government with demand for its first bond offering of the year… The coupon interest payment on the deal, expected to be worth €5bn, is likely to be 6.12 per cent – or 3.8 percentage points higher than equivalent […]

How monetary policy subsidises banks – and what to do about it

Governments borrow by issueing bonds of various maturities. They liquify the banking system by lending banks money, often for very short maturities. If the yield curve points up, as it often does, then banks can make money simply by borrowing for one week from the central bank and investing the proceeds in longer term bonds. […]

‘No amount of capital is enough’ – Obama

One thing that is interesting about the Obama proposal for banking reform is the fact that some things – owning private equity groups, sponsoring hedge funds – are going to be banned for banks. Not fully supported by equity: banned. Obama is effectively saying that no amount of capital, not even 100% of notional, is […]

Are bank prop desks about to be dumped on*?

I rather doubt it, but these are worrying times for those that have not yet decanted from the Wharf to Mayfair. As Bloomberg says: President Barack Obama will offer proposals to limit financial institutions’ size and trading activities as a way to reduce risk-taking, an administration official said… The proposals could affect trading at some […]

Making safe vs. predicting danger

There is an interesting letter in the current LRB from Wilhelm Schneider: … In many cases it is true that the ‘future’ (of chemical processes, say) can be precisely predicted on the basis of the laws of nature, and engineers take advantage of those fortunate circumstances. But there are also counter-examples: it is notoriously difficult, […]

How Ponzi were CDOs of ABS?

There has been much incendiary and ill-informed comment on the ‘shadow banking system’ and Wall Street as ‘a giant Ponzi scheme’. As always in the aftermath of a crisis, hyperbole is not in short supply. Still, there is one sense in which a limited version of this claim might be true: the business of making […]

Why (some of) the successful don’t get it

Chris Atherton has an interesting explanation for Why experts are morons (which I have edited mildly to suit my purposes): Below is a recipe for modest success … and for becoming a legitimate ‘expert’. (Quantities and ingredients may vary according to your needs and experience.) You need to be bright-ish. Not supernova bright, just bright […]

Fannie and Freddie losses? 10% to you sir

From Laurie Goodman at Amherst Securities via the Big Picture: Freddie will likely lose around $178 billion of its $1.86 trillion credit guarantee book, and Fannie will likely lose $270 billion of its $2.81 trillion book. Combine the credit guarantee books of the two firms, and you reach a $4.67 trillion book, with estimated losses […]

If you have a wordpress blog…

… and you get spam comments (mine were primarily from Russia), then you might want to add an .htaccess file. The skinny is here.

The consequences of doing away with AFS

This came up in FT alphaville a little while ago, and I should get back to it. It is a somewhat complicated story, so let’s take it slowly. Firstly, the new Basel proposals: No adjustment should be applied to remove from the Common Equity component of Tier 1 unrealised gains or losses recognised on the […]

Bringing higher education to its knees

From the Guardian: Top universities accuse Gordon Brown of jeopardising 800 years of higher education, warning that they could quickly be “brought to their knees” by the government’s spending cuts of up to £2.5bn, thereby damaging Britain’s ability to recover from recession. Quite right, and exactly as we said before Christmas when these plans first […]

The coming crash?

After an ‘interesting’ 2008 and 2009 in the markets, will 2010 be any quieter? Perhaps not. The Economist is calling a bubble in a number of markets: For all the panic last year, asset values never quite reached the lows that marked other bear-market bottoms, and now the rally has made several markets look pricey […]

Content may or may not want to be free

I recently had an email suggesting that I might like to republish Deus Ex on another website. The deal on offer involved no money, but more readers. Moreover, given the other content on the website concerned, those new readers would be less erudite than you, and I would be making money for the website owner. […]

Location, location, location

Where do you want to be when a crisis strikes? The answer is clearly `not head office’. It was noticeable that the bankers who did well after the ’98 Russian crisis were often those who had senior positions in Asia or Latin America, and who were perceived to have acted like good corporate citizens (i.e. […]

Weather advice

Snow is so much easier to bear in places that are used to it. Unlike, um, London.