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 [...]
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 [...]
Who remembers RiskChat.com, 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 [...]
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. [...]
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.
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 [...]
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, [...]
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 [...]
The SEC just announced that Goldman Sachs has agreed to pay $550 million to settle charges of defrauding investors through sales of collateralized debt obligations. Not surprisingly, Goldman’s stock surged on the announcement. Can you believe this? What is more, the firm’s corporate and institutional clients have not abandoned it as the sordid findings of [...]
With the markets in turmoil, I have little time to comment publicly, and breaking through to be heard above the clatter is all but impossible. Reporters seeking sound bites don’t help. From: Tansy Harcourt To: Glyn Holton Sent: October 1, 2008 Subject: Consulting Hi Glyn, I’m a journalist in Australia for the Australian Financial Review. [...]
During the 1800s, mathematicians, and especially Cauchy, finally got around to rigorizing calculus. They got rid of the “infinitesimal” business once and for all, replacing infinitesimals with limits. It is troubling how widespread misunderstanding of calculus is 150 years later. Instead of understanding calculus from Cauchy’s rigorous standpoint, people embrace a hodge-podge of infinitesimals AND limits.
This week’s BusinessWeek reports on changes in risk management within financial institutions in the wake of the subprime meltdown and Societe Generale rogue trader fiasco. Merrill’s new CEO, John Thaine, has created two new high-level risk manager positions reporting directly to him—and he is going to meet with them weekly. Morgan Stanley has appointed a [...]