Surely not foreshadowing

The Republican convention started with a whimper of bare-bones proceedings as Tropical Storm Isaac churned through the Gulf of Mexico, according to Reuters. Now, far be it from me to call what is plainly an unrelated natural phenomenon ominous, but there is a history of storms preceeding – although obviously not portending – really nasty […]

Finally, Lanced

Yesterday, Lance Armstrong said he will stop fighting charges brought by the US Anti-Doping Agency. This means it is highly likely that he will be stripped of all of his Tour de France wins and that he will receive a lifetime ban. This blog has consistently been suspicious of Armstrong, and we thoroughly agree with […]

A paean to the lost art of travelling in style

My heart fell when I read that the government is to revisit the idea of introducing security scanners at railway stations. Let’s bring all the romance and convenience of airport security to the railways. After all, we got things so wrong in the past – look at how unappealing this is* *I think I might […]

Auditors, nul point

From Dealbook: Having completed the first review of brokerage firm audits, the Public Company Accounting Oversight Board said on Monday that it had found deficiencies in every audit its inspectors reviewed. Go and read the whole article; it is hilarious (unless you have an unquestioning belief in the veracity of audited financial statements).

What’s good for the goose

Aditya Chakrabortty makes an interesting point in today’s Guardian: After the drubbing in Atlanta in 1996, from which Steve Redgrave and Matthew Pinsent brought home Britain’s single gold, lottery money was pumped into elite sports… The result? Dramatic improvements at every Games since, with 29 golds scored at London this summer. Much of this is […]

Fragmentation or market power?

SWP asks the question with regard to options for the reform of the equity markets. I reply market power, with appropriate regulation to constrain it: ban the dark pools, impose a central order book (so that the notion of best execution is meaningful and liquidity is maximised), and then regulate exchanges as utilities whose mandate […]


First I have to say that I cordially loathe the word – gameification or gamefication would be better – but the idea is interesting. From Wikipedia: Gamification is the use of game design techniques, game thinking and game mechanics to enhance non-game contexts. The key observation is that successful game designers are good at getting […]

Below zero

An interesting observation from the Bond Vigilantes, which moreover has implications for interest rate models that are floored at zero: As investors we get used to living within certain recognised bounds. For example, it has been commonly assumed that interest rates cannot be sub-zero. There has been the odd historical quirk when we’ve seen negative […]

The Clash on Standard Chartered

I fought the Lawsky and the Lawsky won. (HT Jonathan Weil, music video here.)

Collateral damage

Four telling graphs, from a great presentation by Citi’s Matt King (HT FT Alphaville). First, the importance of the repo market: Second, the growing importance of collateralized borrowing (and the decline of the interbank market): Third, the trend towards the use of ‘safe’ collateral: Fourth, where the bad stuff ends up: So… what do we […]

Owning things you don’t understand

Dealbreaker has an interesting article on a case involving Wells Fargo mis-selling SIV-issued CP to a muni. They go through the specifics of the case (which are outrageous – the salesguy didn’t know what a SIV was when he sold them the paper), but then they riff on the structure of the system that let […]

Travelling next week

But not, sadly, on water like this.

The Libor problem in three illustrations

From the Wheatley review (HT Lisa Pollack at FT alphaville), three illustrations. First, how many contracts use Libor? Quite a lot then, especially swaps. Second, which Libors do all those swaps use? 3 and 6 month. OK. Third, which Libors actually trade? Ah. So 3m kinda trades and 6m doesn’t trade. Still, what could do […]

Three links

I’m a little busy trying to finish something, so here are three terse items from my ‘read, and want to blog about’ list for the week so far: A truly shocking article on The Big Picture about the effective tax rates of the most profitable US companies. I really don’t think this state of affairs […]

Did someone just leave the door ajar?

From BCBS 228, Basel III counterparty credit risk – Frequently asked questions : How should purchased credit derivative protection against a banking book exposure that is subject to the double default framework or the substitution approach be treated in the context of the CVA capital charge? Purchased credit derivative protection against a banking book exposure […]

Culturally neutral risk reporting

Last week, I mused a little on the cultural theory of risk and its consequences for financial risk management. Today I want to say something about risk reporting in that context. Specifically, I would suggest that one wants risk reporting that meets the needs and attitudes of all four cultural groups. That means 1. Individualists […]

The institutional consequences of the cultural theory of risk

Yesterday, we outlined four attitudes which the Cultural Theory of Risk advances as a fundamental classification. Today, I want to look at what that classification suggests organizationally. David Ingram suggests (1) that you find Individualists in Sales/Underwriting/Trading. They tend to be paid with a high proportion of incentives or bonuses. They prefer to get paid […]

Cultural attitudes to risk

There is a body of work known as the cultural theory of risk which identifies four attitudes towards risk taking. Like any sociological classification it is not precise, but nevertheless it is both interesting and insightful. There have been a number of articles on this in Wilmott magazine: the following is a paraphrase of one […]

Dark Knight Crashes

We didn’t need further evidence that the rise of high frequency trading has left the equity market vulnerable to destabilising behaviour. That has been obvious since the flash crash. But just to underline the point yesterday according to Streetinsider Knight Capital Group is in some hot water Wednesday, following trading errors leading to larger-than-expected stock […]

What should bank capital regulation seek to achieve?

Wikipedia wisely opines [Capital] Requirements are imposed on banks in order to promote the objectives of the regulator. Note what it doesn’t say; it doesn’t say that capital requirements are imposed in order to ensure that banks can absorb losses, nor does it say that capital requirements promote financial stability. This is because these may […]