Visualizing high quality bond returns

I have been musing for a while on how best to give insight into the returns of fairly safe instruments, like an asset swapped government or investment grade corporate bond. Here’s what I have come up with. The first thing you need is to understand what the probability of default is. Now, in a precise […]

Too lazy to be knowns

You will recall the famous (and unfairly derided) Rumsfeld quote: [T]here are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – there are things we do not […]

A Sunday in Winter

Keep warm: I get the feeling that February is going to be cold for many of us…

Leaving (Blair behind)

Radio 4 has rebroadcast Václav Havel’s Leaving. It’s a play nominally about the chancellor of an ex-soviet state, perhaps Havel’s own Czeck republic, who is leaving office. But about ten minutes in, Havel in uncomfortable self-parody has the Chancellor say something that could have been Tony Blair (or David Blunkett): I have always placed great […]

Congratulations George

As not the Treasury view points out, the UK recession has now lasted longer than the Great Depression of the 1930s. (HT Krugman) Now do you believe me that Osbourne is the worst chancellor in living memory?

A cold day for MF Global clients

Businessweek reminds us that the MF global situation has still not been resolved, money is still missing, and an exchange of lawsuits seems likely between the administrators of the UK and US arms of the firm: MF Global Holding Ltd.’s clients may be the losers no matter who wins a $700 million dispute between bankruptcy […]

Capital is funding

FT alphaville has a nice riff on the whole systemic risk of margin calls thing, discussing in particular the risk of variation margin calls in the ECB’s LTRO. They quote some Nomura research which makes a number of good points, but one dodgy one. The major thrust first: The cost of the haircuts and existing […]

What is Fannie good for?

Papagianis and Swagel writing on Bloomberg view about Fannie Mae and Freddie Mac argue that the US government should recognize budgetary reality and put the firms’ liabilities on the government balance sheet and include their spending in the federal budget. They are probably right. I certainly think that if an entity enjoys a government guarantee […]

Safe assets again

Gorton, Lewellen and Metrick have a new paper on safe assets (HT FT alphaville, see Timothy Taylor for more details). This is a topic I have blogged about several times before, so here are the highlights. The percentage of all U.S. assets that are “safe” has remained stable at about 33 percent since 1952 – […]

Ratings agency comment of the day

From the Daily Mash: Credit rating agency Standard & Poor’s has upgraded itself to Triple-A Plus Super Fantastic. (I was going to go with Philip Stevens’ somewhat more sober post on a similar theme in the FT, but I can’t resist the Daily Mash’s nuanced, balanced stance.) Now, before we go, let’s remind ourselves as […]

The new Bourbons

A propos the on-going fracas in the Labour party over austerity (see for instance here, here or here), Edward Pearce has a nice piece on the LRB blog. His final paragraph says Blairites can’t understand why they lost the leadership. Their trouble is an affinity with exiled royalty; Ed Miliband’s succesful candidacy has been treated […]

It wasn’t just Fannie

Jonathan Weil, as so often, has a good article on Bloomberg. He trashes the ‘Fannie and Freddie were the cause of the crisis’ thesis, pointing out that there was no single cause. What we can say is this: But for the actions of a vast number of actors, including Fannie and Freddie, the crisis wouldn’t […]

What regime should you charge for capital under?

Dealbreaker picks up on some interesting comments from Goldman’s Viniar about allocating regulatory capital to businesses: As far as how we’re charging the desks, that’s a little bit of a complicated question. And we’re working through that now, and it — there’s no one-size-fits-all yet. And we have to be careful. As you know, Basel […]

Most things are wrong (and it doesn’t matter)

For my sins, perhaps in a past life, I used to manage a model verification group. We looked at derivatives pricing models and checked their accuracy. Many of the ones we looked at were somewhat wrong, and some of these we passed anyway. Why? A model is only designed to be used with a domain […]

Winter shore

I will be traveling next week so posting will be light. Here’s a bleak midwinter scene for all of you who haven’t had any snow:

Anyone up for a fight?

Switzerland has a freedom of information law, as do some of the Cantons. Now, the national law probably doesn’t apply to a transnational entity like the BIS, and it is anyway little used, but if anyone feels like making a nuisance of themselves, how about writing to the secretary of the Basel committee and asking […]

The Basel Committee (and FIFA)

Risk Management Australia has a nice history of the Basel Accord process from Pat McConnell here. As well as describing how the Accords have evolved, he makes some good points about Basel’s responsiveness. My favourite section of the post describes what Basel did and didn’t do in the years around the crisis: By the time […]

In praise of things that are always what you think they are

A major cause of systemic risk in the financial system is things that are mostly one thing, but occasionally another. Unlike Gremlins – where you are safe provided you don’t get them wet* – these things change without your intervention. Euro-periphery government bonds are one example; AAA RMBS during the crisis are another. These things […]

(Mildly) updated systemic risks of clearing paper – and pie

A slightly updated version of the Systemic Risks of OTC derivatives central clearing paper can be found here. Any new comments would be much appreciated; they might even persuade me to share the pie… The paper should print better than the prior version too, now that I have discovered how to save ISO 19005-1 compliant […]

My first thought on hearing about Kodak

When I heard Kodak was probably going to file for bankruptcy, my first thought was to wonder what it might do to the price of medium format digital cameras. You see, Kodak makes one of the few sensors in this area, and MF digital is still really expensive. It turns out though that Kodak have […]