How much do chief risk officers talk to each other?
Algonaut asks whether the Financial Services Oversight Council will have a direct line to banks’ chief risk officers; I’m sure the answer is yes. But I also think that won’t be enough. What I’d love to...
View ArticleModelling model risk
Paul Wilmott has words of wisdom for anybody in the financial-services industry who’s putting a model together: At every stage of valuation and model development you must be asking questions about risk...
View ArticleGoldman goes off-message
Goldman Sachs bankers are generally smooth, urbane, and on-message. But these days they’re clearly flustered. Why else would Goldman president Gary Cohn say something as arrogant and tone-deaf as this...
View ArticleHow has VaR changed over time?
Whenever I write about banks’ rising Value-at-Risk, a bunch of commenters tells me that duh of course VaR is rising, because VaR is a function of volatility, and volatility has gone up. So here’s my...
View ArticleMoney market funds, risk, and cash
Eleanor Laise has the encouraging news this morning that Deutsche Bank is planning to launch a money-market fund whose shares fluctuate in value, rather than being artificially pegged at $1. On the...
View ArticleThe unwilling risk-takers
Comment of the day comes from Chris: The person most willing to take on risk is the one unaware he is doing so. He charges no risk premium… The resulting market equilibrium is that the guy who is...
View ArticleThe risk-averse rich
What’s the correlation between wealth and risk appetite? I suspect that it’s somewhat bell-shaped: when you’re very poor you can’t afford to take any risks, while if you’re entering the middle classes...
View ArticleJohn Paulson’s high-risk hubris
Malcom Gladwell is no particular expert on financial markets. But he has said, according to Moe Tkacik, that of all the people he has interviewed, he most identifies with Nassim Nicholas Taleb — in a...
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Crisis chart of the day: The correlation between severity and probability
The World Economic Forum has released its annual Global Risks report, which kicks off with this chart: There’s a key explaining what all these numbers are, ranging from 1 (food price volatility) to 36...
View ArticleWhen Goldman Sachs hates marking to market
The most ridiculous sentence I’ve read today comes from Goldman Sachs, protesting against proposals that money-market funds should be marked to market. But first let’s remember what Goldman CEO Lloyd...
View ArticleMeasuring total risk
Peter Conti-Brown has a new paper proposing the creation of what he calls a Fat Tail Risk Metric, or FTRM. The paper itself is flawed, and the details of how it’s constructed would need to be reworked...
View ArticleHow monoculture is like triple-A CDOs
Tom Laskawy, of Beyond Green, writes asking for a bit more detail about this bit of my locavorism article: If you only grow one crop, the downside of losing it all to an outbreak is catastrophe. In...
View ArticleWhen investment banks hire risk-takers
Matt Taibbi is quite right about the $2 billion of rogue-trading losses at UBS. Basically, investment banks hire for risk-takers; they shouldn’t be surprised when this kind of thing happens. The brains...
View ArticleWho is to blame for Ina Drew’s downfall?
Susan Dominus has a big 7,500-word NYT Magazine feature on the rise and fall of Ina Drew, featuring a couple of bland quotes from Jamie Dimon but nothing — nothing on the record, at least — from Drew...
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How Goldman Sachs protects itself from a hundred-year storm
(Picture from Stephen Foley) “When it comes to natural disasters,” says Rob Cox today, “there’s no such thing as too much preparation.” He then goes on to extend the analogy: In advance of Sandy’s...
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