Posts filed under “Derivatives”

Fat Cats and Starving Dogs; Happy Foxes and Sad Sacks

This weekend, I saw Margin Call on DVD. Jeremy Irons plays a CEO of a small Goldman Sachs like company.

A young analyst at the firm discovers that their highly-leveraged, massive mortgage bets are based on a VAR formula that’s flawed. It failed to consider volatility ranges beyond historical distributions. With the market swinging, his calculations show a 25% move in the underlying holdings will wipe the company out and then some.

Irons ends up giving a speech to Kevin Spacey towards the end of the film — no spoilers here — its just a fascinating digression, that goes something like this:

“Its just money; its made up. Pieces of paper with pictures on it so we don’t have to kill each other just to get something to eat. It’s not wrong. And it’s certainly no different today than its ever been. 1637, 1797, 1819, 37, 57, 84, 1901, 07, 29, 1937, 1974, 1987 — Jesus, didn’t that fuck up me up good — 92, 97, 2000 and whatever we want to call this [2008].

It’s all just the same thing over and over; we can’t help ourselves. And you and I can’t control it, or stop it, or even slow it. Or even ever-so-slightly alter it. We just react. And we make a lot money if we get it right. And we get left by the side of the side of the road if we get it wrong.

And there have always been and there always will be the same percentage of winners and losers. Happy foxes and sad sacks. Fat cats and starving dogs in this world. Yeah, there may be more of us today than there’s ever been. But the percentages-they stay exactly the same.”

Its a great film (IMDB) — if you have not seen it yet, move it to the top of your Netflix queue . .  .

Category: Bailouts, Derivatives, Film

Re-hypothecation: How it’s related to MF Global

Marketplace Whiteboard:

If ever there was a word that you’d expect to find in a Harry Potter  novel, it’s re-hypothecation. This a classic example of financial  people inventing impenetrable terminology to make their business look  like a black art. “Oooh, re-hypothecation, it must be magic!”

Well it isn’t.

The term “re-hypothecation” came up a lot during the MF Global meltdown; It’s quite a common term in the securities market – but what does it mean?

To explain re-hypothecation, we have to explain hypothecation. And  hypothecation is pretty simple. It’s when you lend someone money and let  the borrower keep the collateral.


Re-hypothecation: How it’s related to MF Global
Paddy Hirsch
Marketplace Jan 4, 2012

Category: Derivatives, Legal, Video

MBIA vs BAC: On why the loss causation ruling is important

“Bank of America Corp. may face billions of dollars more in liability for faulty mortgages if a judge agrees with insurer MBIA Inc. that the lender must buy back loans even if the errors didn’t cause a borrower’s default…If New York Supreme Court Justice Eileen Bransten and judges in similar cases across the country rule…Read More

Category: Derivatives, Legal, Think Tank

The (sizable) Role of Rehypothecation in the Shadow Banking System

The (sizable) Role of Rehypothecation in the Shadow Banking System Singh, Manmohan ; Aitken, James July 01, 2010 ~~~ This paper examines the sizable role of rehypothecation in the shadow banking system. Rehypothecation is the practice that allows collateral posted by, say, a hedge fund to its prime broker to be used again as collateral…Read More

Category: Credit, Derivatives, Regulation, Think Tank

MF Global Collapse Reveals Systemic Risk

> My Sunday Washington Post column is out this morning. Today, we look at The systemic risk revealed by MF Global’s collapse. As has been the case so many times, the details of this debacle are found in the regulatory changes lobbied for — and recieved — by Corzine and the MF Global legal crew….Read More

Category: Apprenticed Investor, Credit, Derivatives, Legal

The (sizable) Role of Rehypothecation In The Shadow Banking System

IMF Working Paper Monetary and Capital Markets Department The (sizable) Role of Rehypothecation in the Shadow Banking System Prepared by Manmohan Singh and James Aitken1 Authorized for distribution by Karl Habermeier July 2010 ~~~

Category: Credit, Derivatives, Think Tank

Ratigan: Inside the Unregulated Shadow Swaps Market

Visit for breaking news, world news, and news about the economy

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Category: Derivatives, Media, Regulation, Video

Discuss: Goldman Is the New Master of the EU?

Discuss: The Independent writes: “This is The Goldman Sachs Project. Put simply, it is to hug governments close. Every business wants to advance its interests with the regulators that can stymie them and the politicians who can give them a tax break, but this is no mere lobbying effort. Goldman is there to provide advice…Read More

Category: Bailouts, Credit, Derivatives

CDS, Market Turmoil, Asset Allocation

CDS, Market Turmoil, Asset Allocation David R. Kotok November 12, 2011 ~~~ Let us consider this week’s credit default swap (CDS) debacle in the following manner. People purchased CDS with the understanding that they had a type of insurance policy against the default of a sovereign debtor. Now they have learned that what they thought…Read More

Category: Bailouts, Derivatives, Think Tank

Can Litigation Bring Down Wall Street?

Click to watch video:

Can litigation bring down Wall Street?
FT. com

Category: Derivatives, Legal, Video