Book Review: Flash Boys

Michael Lewis has a new book out. It may be more influential than even his 1989 runaway bestseller Liar’s Poker. Called Flash Boys: A Wall Street Revolt, it is an illuminating expose of the shadowy world of high-frequency trading. For almost a decade, the U.S. equity markets have been corrupted. Established exchanges have fragmented into […]

The First Mutual Funds: Interview With Michael Yogg

Today, I interview Michael Yogg, author of the new book Passion for Reality. Its about Paul Cabot, a pioneer of the mutual fund industry. In 1920s Boston, Cabot cofounded State Street Investment Corporation, one of the first open-ended mutual funds. He shepherded the fund through frenzied markets, the crash of 1929 and into the Great […]

Nickels In Front of Bulldozers

There is an old saying on trading floors: Watch the trader who makes consistent money. He is the one who is going to blow up. In his book When Genius Failed, on the 1998 failure of hedge fund Long-Term Capital Management (LTCM), Roger Lowenstein shares a compelling analogy for this: Picking up nickels in front […]

Zombie Glass–Steagall

On Tuesday, the FDIC released proposed rules for implementing Section 619 of the Dodd-Frank Act—the so-called Volcker Rule. On Wednesday, the SEC did the same. This is a joint effort of the FDIC, Federal Reserve Board, SEC and OCC. Their—largely identical—proposed rules are based on a 79 page study released by Tim Geithner’s Department of […]

This Is What Democracy Looks Like.

Yesterday, I headed over to Dewey Square for my first visit to Occupy Boston. I found more than I expected, and less. The closely spaced tents are a cacophony of colors, nestled among office buildings. To one corner is the venerable South Station, completed in 1899. The aluminum Federal Reserve building towers above, aging ungracefully. People […]

“The World’s Largest Hedge Fund Is A Fraud.”

I recently attended a screening of the new documentary Chasing Madoff about a financial analyst, Harry Markopolos, who uncovered Bernie Madoff’s Ponzi scheme and spent almost a decade trying to get the SEC to investigate. One of his filing with the SEC was entitled The World’s Largest Hedge Fund Is A Fraud, but that wasn’t enough […]

Risk Archive: Preserving a Financial Knowledge Base

Who remembers, a forum on financial risk management that I had the pleasure and honor of hosting from 1996 to 2009? It was the go-to website for financial professionals to discuss risk management, trading, financial engineering and a host of related topics. Over its life, the forum accumulated some 15,000 posts, a valuable knowledge base […]

Economic Interests and the American Civil War

Tuesday, April 12, 2011 marks the 150th anniversary of the Confederate attack on Fort Sumter. The ensuing Civil War was a conflict of the industrial revolution. New technologies, such as rifles, railroads and steamships, facilitated bloodletting on a horrific scale. It consolidated power in the federal government in ways the founders had hoped to prevent. […]

Test Your Risk Intuition

I am dusting off a classic test for risk intuition. If you remember the test from years past, it will be nice to reminisce. If not, take the test now to assess your intuition and look at risk in a new way.

Triangle Shirtwaist Factory Fire

March 25, 2011 marks the hundred year anniversary of the Triangle Shirtwaist Factory fire. One hundred forty-six workers perished in a blaze that engulfed the ten story Asch Building in lower Manhattan. Most were young seamstresses who worked six days a week for a pittance. The tragedy unfolded blocks from where, ninety years later, the twin towers […]

Stress Testing: A Reminder from Fukushima

The eyes of the world are on Fukushima, Japan, where heroic technicians and military personnel struggle to prevent a nuclear armageddon. A massive earthquake spawned a devastating tsunami that knocked out a nuclear power plant’s cooling system. And here we are. This reminds us how low-probability high-impact events tend to be correlated. If a country experiences prolonged draught, […]

Upside Risk, Downside Risk

Risk has two components: exposure, and uncertainty. If either is absent, there is no risk. But some people insist there must be a third component: downside. Let me explain. If you are uncertain about some consequential event, the set of possible desirable outcomes is sometimes called your “upside risk”. The set of possible adverse outcomes is […]

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