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Causal CapitalRMB - Risk, Markets & Banking June 25, 2009 Regulators, Ratings and RamblingsWhen it comes to regulators and rating agencies ... I fair the rating agencies have a lot to account for in this credit crisis but we only have ourselves to blame. Imagine the following scenario sets: Continue reading "Regulators, Ratings and Ramblings" Posted by Martin Davies at 02:30 PM | Comments (0) June 13, 2009 Between a hard rock and a cold placeSome readers expressed a range of interesting market based opinions to our last blog ``Greedy glut feeding frenzy`` so in the theme of this we are going to continue the topic. Continue reading "Between a hard rock and a cold place" Posted by Martin Davies at 10:43 PM | Comments (1) May 06, 2009 Greedy glut feeding frenzyCash for trash, writes Paul Krugman and is what many sceptics labelled Henry Paulson`s 700 billion rescue plan. To be honest the same could be said for some of the securities that are part of this invincible recovery and not just restricted to US markets but across the entire wagon of global equities. Continue reading "Greedy glut feeding frenzy" Posted by Martin Davies at 10:16 PM | Comments (0) March 09, 2009 Why aren't banks lendingMrs Clinton might just have the right wording but the wrong audience. ``Secretary of State Hillary Clinton went for a little joke today about resetting relations with the Russians. Clinton, presented Russian Foreign Minister Sergei Lavrov with a gift-wrapped RESET button, called the `little gift`. The word on the button was meant to say RESET in Russian however as Lavrov acknowledged - the word actually means OVERCHARGE in Russian.`` That is where the banks are at; OVER-charged, OVER-burdened and OVER-encumbered. In simple terms banks aren`t lending because they are under capitalised with model loss impairments. A recent article in the economist clearly shows this: Continue reading "Why aren't banks lending" Posted by Martin Davies at 05:22 PM | Comments (1) February 21, 2009 Points for discussionAn interesting debate about the approaches that banks have taken to quantify operational risk for Basel II. What have been the problems and what are some of the solutions, is openly discussed in this article. Really does Basel II work at all?
Continue reading "Points for discussion" Posted by Martin Davies at 02:45 PM | Comments (0) February 12, 2009 The US compensation battleThe latest musings on the credit crisis or perhaps the outcome of the event (one single occasion is usually driven by many causal factors), is corporate compensation. This week president Barack Obama called the bonus payouts for banks receiving rescue funds as "shameful" and that the government will require financial companies on the aid trade to cap compensation for top officials at USD 500,000 a year. Obama stated that he was responding to a public outcry "in bad taste" over bonuses paid to bankers and wanted to enforce greater transparency of expenses and restrict severance pay when executives leave the company. Continue reading "The US compensation battle" Posted by Martin Davies at 06:10 PM | Comments (1) January 16, 2009 Call it what it is, pawn carsThe acronym GM should be renamed from General Motors to Gross Manipulation and while there are some that reckon I am heavy handed with my criticism of the US government response to the General Motors collapse, I stand by view. Oh I hear the argument that if GM fails the outcome to the manufacturing supply chain may be devastating; huge job losses could amplify the broad decay of the US economy further (if that is possible with interest rates hovering above nothing) and lead the world to a deep seated recession as marginal retail consumption declines. Personally I believe the world is greater than General Motors however the domain I am going to pitch from in this article is NOT some rhetoric to argue this point. Without digressing too much, there are three key maxims that to me I question from a moral perspective. These need to be painted as they are even though they may be well intentioned. Continue reading "Call it what it is, pawn cars" Posted by Martin Davies at 12:58 PM | Comments (0) December 15, 2008 The Gray SwanIn the theme of the Nassim Taleb dissection of risk systems in the world of finance, the black swan is something extraordinary rare but hugely negative (or positive) to our current strategy and a white swan is the normal mode of operation. It might follow then that the gray swan must be systemic failure of the normal, a platykurtic distribution (a distribution which is peeked and wide around the normal position) where white is not so white when viewed from an External Perspective. Continue reading "The Gray Swan" Posted by Martin Davies at 05:34 PM | Comments (1) September 30, 2008 Juncture 228-205Juncture 228-205, disembark here for a free fall experience that will rock your life. If we were to put a title around this month`s outcome, it would have to be 228-205; the straw that breaks the camel`s back if you want a different cliche. Continue reading "Juncture 228-205" Posted by Martin Davies at 04:36 PM | Comments (3) July 28, 2008 Senate to question market libertyTo question market liberty is perhaps equivocation of itself. To be precise, if one was to look up the dictionary definition of `market` they would find something on the lines of `an open place where buyers and sellers convene for the sale of goods` and while these places have rules, markets work best when price discovery is a true representation of demand or supply. As soon as that is not the case such peddlers generally go elsewhere to satisfy their disports. Continue reading "Senate to question market liberty" Posted by Martin Davies at 06:03 AM | Comments (0) July 20, 2008 The Barometer of the US Equity MarketThere is a theory in many US equity market centres known as the January Barometer which goes something like the following: Continue reading "The Barometer of the US Equity Market" Posted by Martin Davies at 05:13 PM | Comments (1) June 15, 2008 Its not an oil crisis, its a dollar crisisIf you want to boil a frog as the saying goes you put it into cold water and raise the temperature slowly for if you throw a cold frog into hot water it will leap out. The US dollar is such an animal and over the last few years there has been some speculation on the deprecating value of the dollar but such talk until lately seems to have been background noise. Like our boiled frog until the temperature raises too high no one notices but in the last five years the US dollar has depreciated against the Euro by 35%. Continue reading "Its not an oil crisis, its a dollar crisis" Posted by Martin Davies at 02:37 AM | Comments (9) May 01, 2008 Its just human natureI read all this garb about the SocGen deal, lack of internal control, failed control processes, collusion between the front and back office; come on be real did this guy just go delinquent? No I would say management, may be not at the top, but halfway up the ladder had to be in on the job; surely. Well on the spectrum of matters we know they are one of two things: Assuming the bank has some definition of risk appetite these people are either incompetent or corrupt; which is a worse place to be? If one draws a line between these two positions, management probably sat somewhere at a place where they tolerated huge positions while the ticket was paying but cut it when the tide turned. Good honest fair people I am sure. This is one of the problems with trading losses from operational risk (trading outside policy), it is the modus operandi of it all. Traders are rewarded on performance as are most artisans in most professions however in the broker environment this encourages increased risk taking. Under the typical model, risk aversion and return are negatively correlated (through a narrow quantile of the correlation range) that is less risk aversion higher yield; so to enjoy marginal utility of reward, a trader must continue to step further from the baseline of risk aversion until there is of course negative marginal utility of return. One can liken it to ethanol consumption, the first drink is just an appetiser for the second and after the fourth, light dirty humor and a savage grope of ones appendages is a pleasant place to be, after the tenth unit the negative aspects of intoxication through saturation become evident, unfortunately well after the fact and the only cure is to ditch the margin account by unwinding anything that is open and then to vomit profusely only to commence the whole process again a week later. Continue reading "Its just human nature" Posted by Martin Davies at 04:10 PM | Comments (0) January 13, 2008 Is there any point in AML?Over the last few months some of the media attention on the craziness in the financial sector leaves one pondering whether perhaps some of the risk approaches employed by banks are worthy of the budgets underlying them. None the less, I meet enough of these risk managers to believe in them, just. I do pity situations such as the one at Barclays only a few days ago. Continue reading "Is there any point in AML?" Posted by Martin Davies at 04:04 AM | Comments (1) December 23, 2007 Home-Host discussions continueAbout a month ago the Bank for International Settlements released its Home Host supervisory cooperation and allocation mechanisms in the context of AMA. This can be found at BIS Paper While this brings a long debate closer to a definitive rule set, it isn`t a done deal yet, mind you BIS themselves don`t claim it to be so either; ``This document elaborates on the home-host paper by applying the home-host principles and practices emerging in the broader implementation of Basel II`` however ``a range of practice in this area has not evolved as yet.`` Continue reading "Home-Host discussions continue" Posted by Martin Davies at 02:24 AM | Comments (0) |
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