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Showing posts with the label financial crisis

George Sugihara On Early Warning Signs

Earlier this month SEED magazine published this very interesting article by George Sugihara, theoretical biologist at Scripps Institution of Oceanography, on how deep mathematical models tie the events of climat change, epileptic seizure, fishery collapses, and risk management surrounding the global financial crisis. Excerpts: [...] Economics is not typically thought of as a global systems problem. Indeed, investment banks are famous for a brand of tunnel vision that focuses risk management at the individual firm level and ignores the difficult and costlier, albeit less frequent, systemic or financial-web problem. Monitoring the ecosystem-like network of firms with interlocking balance sheets is not in the risk manager’s job description. A parallel situation exists in fisheries, where stocks are traditionally managed one species at a time. Alarm over collapsing fish stocks, however, is helping to create the current push for ecosystem-based ocean management. This is a step in the ri

Nassim Taleb on Euro

"EURO IS DOOMED AS A CONCEPT", declares the author of "The Black Swan", Nassim Taleb, at a recent interview with CNBC. Adding that "We had less debt cumulatively [two years ago], and more people employed. Today, we have more risk in the system, and a smaller tax base. [...] Banks balance sheets are just as bad as they were" two years ago when the crisis began and "the quality of the risks hasn't improved." Part I: While discussing the outlook for the global economy with Bob Long (CEO, Conversus Capital) on CNBC, Taleb says, "We have no other solution but to slash debt". Part II: "The balance sheets of banks are just as bad as they were" two years ago when the crisis began and "the quality of the risks hasn't improved," argues Nassim Taleb.

Goldman Sachs Under Siege (For Doing Good?)

FT point out: - clueless senators falling over one another to score cheap political points but the sense that outrage against bankers in general, and Goldman in particular, has reached unhealthy levels . - for millions of home owners and investors psychologically unable to admit at least partial fault for succumbing to the madness of crowds and lure of easy money . - [an older client on the respect for the firm] 1982 when Puerto Rican nationalists bombed Merrill Lynch’s Manhattan headquarters. “Didn’t they know all the money and brains are at Goldman?” And, finally, - some even wonder whether the group’s perceived Jewishness has infected legitimate criticism of it with centuries-old prejudices. See also: Go here for the FT article. Go here for a follow up by TT Ram Mohan in ET.

Mushroom Theory Leadership

Mushroom Management Theory: Keep employees in the dark and fearful, feed them manure and dung, watch them grow and when they grow enough, get them canned. (try here for more at urban dictionary) IN QUITE A CONTRAST TO THE PREVIOUS post on model leadership , this is not only a different type of leadership, it is found being practices widely as well. Referencing their publication for this month (June 2009), John Landry of Harvard Business Review writes that Lehman would not have happened if they would have allowed a freer flow of information, or made it easier for employees to raise their concerns. Industry observers have drawn parallels of Lehman explosion with implosions of Enron and WorldCom citing the same "keeping in dark" issues where information is not shared. But before that, a brief 'story':

NRN: Percepts of Being a Respectable Leader

Americanism means the virtues of courage, honor, justice, truth, sincerity, and hardihood; the virtues that made America. The things that will destroy America are prosperity-at-any-price, peace-at-any-price, safety-first instead of duty-first, the love of soft living and the get-rich-quick theory of life. -- Theodore Roosevelt NR NARAYANA MURTHY OF INFOSYS delivered the opening lecture at Columbia Business School's Khemka Distinguished Speaker Forum at Manhattan on May 26, 2009, where the above quote from Roosevelt were the closing lines. Mr. Murthy began by describing Capitalism as an economic system in which investment in and ownership of the means of production, distribution and exchange of wealth is made possible and is maintained chiefly by the private individuals or corporations. It is a system that incentivises individuals to use their enterprise, drive, hard-work and innovation to create wealth for themselves and the society. Mr. Murthy argued that capitalism is also a

Taleb and (guru) Mandelbrot together on Credit Crunch

THIS ACTUALLY TOOK PLACE AT PBS STUDIOS some five months ago when the $700bn bail-out package aka Troubled Asset Relief Program (TARP) was announced at the U.S. Senate. Nassim Taleb features here with his Guru Benoit Mandelbrot in this joint interview by Paul Solomon titled 'Experts Examine Future of Credit Crunch'. For anyone new to Mandelbrot and Taleb or the subjects of Chaos theory and randomness that they deal with, this shall provide a good introduction (and a starting point to what could become a very interesting journey. I have been meaning to post these for a few months now. Finally, the cat is out of the draft.). Below are two excerpts from the talk, followed by the direct PBS podcast: The increased concentration among banks seems to have the effect of making financial crises less likely. But when they happen, they are more global in scale and hit us very hard. True, we now have fewer failures, but, when they occur, I shiver at the thought. -- Nassim Taleb in his

Meltdown Graphics

SOME OF THE INTERESTING GRAPHICS recently found at certain online sources, two of which are real and one is creative. [Stock prices of three of the UK's largest banks bite dust. The most hit is Fred's RBS , which was eroded close to Zero pence. source: Economist.com ] [Three talk-of-the-doom-town financial phenomena: Long Tail , Tipping Point , and the Black Swan . source: Longtail.com ] [Fall of capitalism and the *new* United States by c.2010 (Or, apparently, Divided States?). source: WSJ.com ]

Britain Officially Slips into Recession

ONLY A COUPLE OF MONTHS AGO, THE (SO CALLED) LEADERSHIP of the stalwarts from the land of the birth of modern finance and capitalism, namely the money streets of London, seem to show the way to the world, yet again. Leading economists from across the Atlantic cried to pay attention to the novel strategy through which the Britons claimed to wager a turnaround of the global financial crisis: by partnering the financial institutes and banks, not just bailing them out. Today, Reuters shows the data declaring that Britain is officially under recession [See Right. Source: Reuters.com] . Now, there doesn't seem to be a consensus on why this happened in spite of all that happened. Nobody seems to be knowing what's going on, where it came from, taking us where. And apparently, Taleb would be having a laugh. But loosing Sterling suddenly could be much harder than the steady weakening US Dollar - it would probably mean that the hedge would become the target; cover is blown. When George

The Financial Crisis: Who Let the Dogs Out

THE DEAL.COM HAS THIS USEFUL illustration explaining at a high-level chain of events leading to the current US financial crisis. The editor chose to describe it as chain-of-fools: [Above: TheDeal.com illustration of chain-of-events leading to the US Financial crisis.] The TIME MAGAZINE for this week features "Depression 2.0" through the following front-page across all editions worldwide. As the cover-story, economist Niall Ferguson narrates why it may not happen: [Above: A B&W photo of depression-era Free soup line in the U.S. featuring as the cover page of 13 Oct 2008 issue of the Time mag.] Update: Embedded this interesting video on the (simplified) explanation on "Crisis of Credit". The Crisis of Credit Visualized from Jonathan Jarvis . See also: Related article: Sub-prime Crisis for Dummies . Go here for WIRED.COM version of "economic explanations [of the crisis] even we could understand" targeted towards the techie community.

The Financial Crisis: Explanations

HERE IS AN HONEST STATEMENT OF ALL by Kedrosky and so I found an echo in his words below - especially the last line: I pity [US] taxpayers wandering into the credit crisis story at this point. It is absurdly complex, and centers on a subject that most people neither care about nor understand. And the last time they looked in they were told this was about subprime and housing, which it no longer is -- at least not in large part. Instead, it is a costly and complex saga involving the unwinding of global credit markets, overlaid with debt syndication, new derivatives, the collapse of the investment banking business, the changing nature of leverage, flawed risk models, structured finance, greed, the housing bacchanalia, savings, paranoia about prior credit crises, and the paradox of thrift. Don't forget, of course, populist political pandering in an election year. Is it any wonder that most of even the most well-intentioned commentary on the current crisis sounds clueless, unhelpful

Lehman Bros Files for Bankruptcy Protection

THE 158 YEARS OLD INVESTMENT BANK FROM THE WALL ST. was finally 'allowed' to go bankrupt by the Federal Govt. By one observation time was against Lehman on two accounts - plenty as well as too short: on one hand, time was too short for them to find a suitable buyer and thus save filing for bankruptcy protection; on the other hand, their stakeholders were considered to have sufficient time to make appropriate arrangements and were thus considered fit to fend for themselves (and go bankrupt... Unlike in the case of Bear Stearns which was prevented from going bankrupt by being 'purchased' by JP Morgan and thus its stakeholders were rather spared). It is not perhaps how large Lehman is and the impact it would generate; the real point to ponder is - is it the first is line? and, who would be next? Also, is the market at large really ready for a new phase of consolidation? What is with the rumors of BofA and Merrill Lynch merger? And while there is enough flux in motion,

Five Lessons from Sub-prime Crisis

PHILIP J. PURCELL, FORMER CEO AND CHAIRMAN OF MORGAN STANLEY, proposed the big five lessons for bankers coming out of the current Sub-prime crisis of the US. For the record, during Mr. Purcell's tenure as CEO at Morgan Stanley for eight years the firm attained following milestones at the close of 2004: #1 in global equity trading #1 in global equity underwriting in 2004 for first time since 1982 #1 global IPO market share in 2004 #2 in global debt underwriting in 2004, with steady gains since late '90s #2 in completed global M&A in 2004 Mr. Purcell resigned from Morgan Stanley in 2005, and has since founded a private equity firm called Continental Investors LLC. Following are the 'lessons' that he recently discussed through an article in FT: i) profits matter more than revenues ( sales ) ii) compensation should be based on profits, margins and return on equity over time, not current year revenues iii) leverage works not just on the upside but on the downside

Sub-prime Crisis for Dummies

THE CLOUD OF SUB-PRIME CRISIS JUST GOT HEAVIER, DARKER AND LARGER. The New York Times reported that the Federal Government may assume direct control of the two of the biggest mortgage-finance companies in the US to bail them out: Fannie Mae and Freddie Mac. These two have nearly 45% of mortgage market share between them, and could potentially tank about USD 5 trillion if they go down. On the other hand, the bail-out of this magnitude might blow away credibility of USD, and imperilling the Fed budget. [Left: Nose-dive - from USD 70 per share last year to USD 9 per share. source: Reuters.com] There is a sense of politics being involved since the NYT report of "nationalization" came out earlier this week. This further took a large chip off the share prices of both and the decline continued for the whole week in spite of confident building reports from the promoters. Fannie Mae's stock, for one, has lost most of its value, swooning from peaks around $70 in August 2007 to

Who Pockets the Extra Money I Pay For Gas?

THERE IS NO PLACE CALLED "KING ABDULLAH ECONOMIC CITY" in the world as of now. But perhaps it wouldn't be long before we see a spot on Google Earth with such a name having 3 million in population, partly thanks to the sky-rocketing Oil prices. Interesting Headlines: "The Crude At Rude Prices" and "Oil Crises called Oil Prices" The crude prices reached a historical record USD 145 per barrel - nearly doubling compared to the previous year. A barrel holds 42 US gallons or about 159 litres of crude oil, making it USD 0.91 for 1 litre - almost double from USD 0.44 per dollar last year. This is the purchasing price of crude oil from the OPEC countries, and is not yet usable. The actual process is much more complicated, but at a very high level, it follows steps like transport it, refine it, process it, transport it again, store it, distribute it and make available at the local gas station. This adds additional costs to the original purchase price of Oil.

"Fred the Shred" under the weather?

THEY CALL HIM "FRED THE SHRED...". If you count "few good men" who took the lead in the "rationalisation" of workforce in the conservative European banking and Financial services, Fred has to be in the front row. Sir Frederick Anderson Goodwin, remained in the news in Europe, mainly Britain, for his often visionary yet unorthodox methods of running Britain's second largest Banking group. After he assumed control, the RBS groups, perhaps for the first time, saw a rather American-styled cost-cutting, or Shredding as the Britons prefer to call it. Managing nearly 1000 people worldwide at the age of 32, the acumen more than the aggression made Fred the CEO of the Clydesdale Bank at the age of 36. He has been quoted as famously saying, "I have no time for cynics, spectators or dead wood". And as we speak, being with the RBS group, he is the longest serving CEO in the FTSE-100 index. (That precisely makes me wonder if the pool underneath is in

Oil money powering windmills

WINDMILLS WERE A THING fascination, especially in the farmland of picturesque Europe, more so perhaps because they spoke of a bygone era that I felt I just missed. To much delight, the winds continued to blow in their directions, as it were, and the windmills kept going around. With time, however, as the water-table got deeper and deeper, the Netherlanders found other ways and means to keep them spinning, namely, Electricity generated by turbines spinning by the winds. And I would say, this is a niche electro-mechanical engineering field - building a very energy efficient and 'light' turbine, such that the winds can spin at, and at the same time it gives sufficient torque to the dynamo to create electromagnetic charge that could be refined as usable domestic electricity. And along with all that technical things, the ROI turns profitable within reasonable metrics (and also, that we don't end up having a dog catching its own tail). Now, so far there was no direct conflict o