Fast growth and "non-derivative banks" didn't keep them from poor investments in property.
The ugliness is getting worse.
Sunday, April 5, 2009
The Exceptional Case of Spain
Saturday, April 4, 2009
This Week In Markets History
It is announced, not from Buckingham Palace, but from Scotland Yard:
Scotland Yard lost £30m of taxpayers' money by reinvesting in a doomed Icelandic bank just weeks after withdrawing the cash on the advice of its financial expert, the Observer can reveal.
The Metropolitan Police Authority withdrew all investments from Landsbanki in April last year following instructions from its treasurer, Ken Hunt. But just weeks later, it reinvested with the bank without informing Hunt who remained in the dark until the bank was nationalised in October.
- Guardian
Thursday, April 2, 2009
Eternal Rebirth
This could fall into the category of Invincible Wall Street, but it has a tinge of fear-greed in it that is wholly different.
Apparently, the CEO whose board approved dividends well into the crisis (Merrill board approved payments up to the very last...), has the vision/visibility to say that recovery may take hold in 2009.
I'd put 3:1 odds that BOA will have a big-bath 4Q this year, at a minimum; but that's just me.
Wednesday, April 1, 2009
Hiding the Copula and Other Tales
Well, very late, I've read about the formula at the center of the storm.
It's supposed to have hidden risk. I'm looking at Chart 5 - does this hide risk? It doesn't look like it (although I'm not sure why it is not symmetric about zero or why the risk appears linear with changes in "correlation", off hand). I mean, the author is clearly showing a sensitivity to correlation.
The insight is a pretty straight-forward application of the properties of a Markov process. From what I can tell, the mathematics of modeling survival rates (hazard rates) did two things. It generalized the mathematical problem AND it allowed people to use different estimates/estimators for the model inputs. The latter may have been more critically important, because it's not at all clear how much information is in credit spreads to begin with, right?
Anyway, Paul Wilmott thinks Gaussian Copula is not robust, but Black-Scholes is. Off hand, it's not easy to see what they are after with that. Both have Gaussian assumptions. You might argue that covariances are more sensitive to leptokurtosis than, say, standard deviation estimates, or something; but, given the Wilmott-Taleb emphasis on outliers, you'd think they would welcome that (if it were true).
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