Comments on: Systemic Risk: Is it Black Swans or Market Innovations?

By: TheTradingReport » Blog Archive » Tackling Causes of the Financial Crisis

Thu, 20 Aug 2009 20:39:13 +0000

[...] quite lengthy talking about behaviors to avoid that usually make for poorer returns. The other was a guest post by Richard Alford, Dennis Santiago and Chris Whalen and on Barry Ritholtz’ site that tried to [...]

By: TheTradingReport » Blog Archive » I May Get Some Hate Mail Over This One

Thu, 20 Aug 2009 14:47:59 +0000

By: RW

RW — Thu, 20 Aug 2009 13:11:46 +0000

Chris et al, the reference to William K. Black’s lecture on criminal behavior (in comments above) is germane to your alternative hypothesis I think; i.e., given the increase in system ‘energy,’ tipping points may also be predicted by an increase in specific forms of mis- and mal-feasance by legitimate intermediaries AKA control fraud.

By: Moss

Moss — Thu, 20 Aug 2009 01:46:13 +0000

Clever attempt to rationalize the mess. The significant market participants fully knew the garbage each had on their books. The surprise was that the fraud was so insidious, and the leverage so high.

By: csissoko

csissoko — Wed, 19 Aug 2009 21:42:49 +0000

To me it seems obvious that the financial industry is “just making excuses for [its] collective failure to identify and manage risk”. For my detailed analysis of how our financial system evolved from one that was competent at managing credit risk in the 70s to one that doesn’t even bother to manage credit risk — ergo Bear Stearns, Lehman and AIG — see this series of posts: http://syntheticassets.wordpress.com/category/serial1/

By: bonghiteric

bonghiteric — Wed, 19 Aug 2009 18:02:19 +0000

Chris,
Based on your experience since Lehman and Bear Stearns can you provide any color on the shift in risk managers’ or regulator’s attitudes? Is there any appreciable movement afoot to revisit prior modeling assumptions either in the regulatory community or among risk managers?

By: aupanner

aupanner — Wed, 19 Aug 2009 17:41:09 +0000

I think this mis-states the purpose or functionality of The Black Swan theory. Or at least I don’t think of it in this way. I think of it in a more objective or simple statistical way. I think of it more of an explanation or an attempt to call attention to the mispricing of risks deemed to be remote possibilities (i.e. they are ignored). In other words, people who are chalking the current situation as a Black Swan event don’t understand the theory.

It’s not about whether this action will likely cause that event. It’s simply a look at the probability that certain things will exist or not exist in the future. Like points on a chart.

Maybe I’m the one missing it. I did find the book tedious and boring at times. Maybe I blew through it too fast…

By: mknowles

mknowles — Wed, 19 Aug 2009 17:09:46 +0000

I think it’s criminal. Please check out:
http://jessescrossroadscafe.blogspot.com/2009/08/this-financial-disaster.html
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
The Great American Bank Robbery

If you suspected that fraud, corruption, incompetence, and coverups at the highest levels are at the heart of our current financial crisis, you’re right.

“…ideology enabled criminality and political failure led to economic crisis as Wall Street bought Capitol Hill…”

The Great American Bank Robbery
Video – Lecture
By William K. Black

1. Why do we have repeated, intensifying economic crises?
2. What can white collar criminology add to our understanding of what’s going wrong?