Maurice Glasman’s important question

David Runciman’s article in the LRB on Maurice Glasman makes me realise that Glasman, while not a socialist and in many ways dangerous, has an important question. Here’s Runciman on Glasman’s political philosophy: What’s needed … is the power of community-based organisation, because it’s only when individuals are joined together by something more substantial than […]

Great leaders realise that they have little control

In a fascinating article in the WSJ, Nassir Ghaem makes two interesting links. First he points out that many of our best leaders in difficult times were (in the clinical sense) depressed: When not irritably manic in his temperament, Churchill experienced recurrent severe depressive episodes, during many of which he was suicidal. Even into his […]

It is not difficult

The Economist, in a wonderfully splenetic and plain speaking piece, accurately sums up the situation in the US: Congress has spent the first month of the third quarter dangling the prospect of a full blown fiscal crisis over the heads of American firms and households. Markets are retreating, and businesses are building up cash reserves […]

Discounting in the presence of rate uncertainty

We all know how to discount future cashflows – they teach you that in Econ 101. But what do you do if you aren’t certain of the rate at which to discount? Mark Buchanan, in a fascinating blog post discussing work by Farmer and Geanakoplos (HT Naked Capitalism) answers the question. While you do what […]

Questions not to ask – sovereign risk edition

Buried in the recent Basel Committee FAQ on the market risk framework – basically a set of answers to questions banks have asked about how to interpret the rules – we find: Should sovereign bonds be included in the IRC charge? Yes. The definition of specific risk in paragraph 709(iii), first sentence, is quite generic. […]

I have a bad feeling about this

It is midsummer, there is no budget deal, the markets are quiet, and everyone is pig tired of dealing with crises. This could go badly. I’d say go to cash, but then the question is what currency – if a budget deal is done then the Swiss Franc will likely sell off fast, for instance; […]

Work complete

The good news is that Deus Ex has been upgraded to the latest verison of WordPress, the spam filter has been improved, and the site should be both faster and (even) more secure going forward. The bad news is that the WordPress upgrade works well but does not terminate successfully, so I sat for an […]

Doing some work

We will be doing some work under the hood at Deus Ex over the weekend so posting will be somewhere between light and non-existent, and the site may be down for a while. Meanwhile, though, you could worse that study last night’s statement from the Eurozone leaders. For me the key phrase is right at […]

Do higher minimum capital requirements for banks do any good?

Here’s the problem. If we set a minimum capital requirement, it is just that, a minimum. Banks have to meet it. The capital that they use to meet that requirement is trapped: it can’t absorb losses, as if it does, the bank is below the minimum, and that is not allowed. The market also plays […]

Model risk and your friendly local regulator

From a fascinating article at AllAboutAlpha (HT FT Alphaville): [There was a] settlement early this year between the Securities and Exchange Commission (SEC) and the AXA Rosenberg Group LLC (ARG), along with other entities affiliated with ARG… The specifics of the problem alleged by the SEC turn on the distinction between Barr’s [an affiliate of […]

Group think: FSA edition

I am sitting in a deeply disappointing FSA seminar on risk management. It’s disappointing because of the failure to take responsbility. I’ve heard the usual analysis of losses in the crisis. They said, as usual (because it is true) that mortgages played a key role. But rather than asking the obvious question – what were […]

Bike beats plane – story of the week

From Slate: It was a bad day for intra-metropolitan area commercial aviation. Jet Blue flight No. 405—the flight that was supposed to help Angelenos beat the chaos resulting from the closure of the 405 freeway—was bested not only by the @wolfpackhustle A team (elite cyclists who had pledged to follow traffic rules), but by @garyridesbikes, […]

Who knew?

John Lancaster in the LRB has a corruscating account of the worm’s eye view of the continuing Eurozone crisis: From the worm’s-eye perspective which most of us inhabit, the general feeling about this new turn in the economic crisis is one of bewilderment. I’ve encountered this in Iceland and in Ireland and in the UK: […]

AAA demand

Here at DEM we have been rather keen to point out that you can’t have a bubble if there are no buyers of the bubbly assets. Viewed in that light, FT alphaville’s declaration of a bubble in AAA bonds gives rise to the question why is there such a demand for AAA assets?. The answers […]

The one with the CSA in its tail

FT alphaville askes How much is this plain vanilla derivative in the window?, noting Banks aren’t marking a [-n uncollateralized] swap to market anymore, but to the model which dictates their internal cost of funds. Why do we care? Because it means pricing even the most basic (uncollateralised) swaps is now very complex. Well, yes […]

Hong Kong Phooey?

From the FT: Hong Kong’s exchange has admitted that risk management and financial resources at its clearing house are not up to international standards. Ah. Oops.

The VPs shrugged

From the excellent Chrystia Freeland interviewing Cornell Economist Robert Frank: CHRYSTIA FREELAND: If the super-talented are getting super rewards, maybe in the past they were not getting the appropriate rewards. I mean, maybe this is really American capitalism working the way most Americans want it to work… CHRYSTIA FREELAND: People don’t work for money? ROBERT […]

High frequency Haldane

Sorry, this is not the HFT blog, really it is not, but I can’t resist a quick copy/paste from the Bank of England on the latest speech by Andy Haldane: …A second task is to rethink the design of trading infrastructures. Regulators in the US and Europe are in the process of doing that. One […]

How much is a very short term option worth?

Further to my last post, TSP suggests My argument against a say 1 second minimum exposure time is based on the fact that quotes are like free options. Forcibly extending time-in-force increases the cost of that option to the quoter. He’s right. But how much is that option worth? To answer that I used a […]

Nuancing HFT

The Streetwise Professor responded to my post on HFT with a number of good points. I am skeptical that requiring trading on a central order book (CLOB) will eliminate flash crashes. Note that flash crashes have occurred on futures markets with CLOBs. Fair enough. But with a CLOB, you can suspend all trading at once, […]