Forums  > Books & Papers  > Janet Tavakoli, D̲e̲c̲i̲s̲i̲o̲n̲s̲  
     
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Rashomon


Total Posts: 166
Joined: Mar 2011
 
Posted: 2015-08-21 20:43
Fun passage from her Kindle Single:

Whenever there was a problem, it had nothing to do with the swap. It was always a credit problem, and almost all of the serious credit problems for investment grade bonds involved fraud. The rating agencies were no help; I had to look at the credits myself.

One co-op loan-backed bond was sliced into investments that got top credit ratings because of insurance from a so-called AAA bond insurer. But most of the co-op units hadn't been sold, and it looked as if the underlying commitments to buy weren't real commitments at all. The developer had stretched the truth beyond recognition. That meant the bonds would have less cash flow than the credit rating agencies assumed.

The bond insurance didn't give much comfort, either. If the securitisation defaulted on payments, the insurer woud only step in to make up the difference after the bankruptcy process was over. What was really astonishing was that the bond insurer didn't have much capital, yet the credit rating agencies rated it "AAA."

"My hands are small, I know, but they're not yours, they are my own. And they're, not yours, they are my own." ~ Jewel

svisstack


Total Posts: 303
Joined: Feb 2014
 
Posted: 2015-08-21 23:10
there are still people who looks on ratings after this usa mortgage backed CDS crisis?

Time well wasted.

Rashomon


Total Posts: 166
Joined: Mar 2011
 
Posted: 2015-08-21 23:46
svisstack: That nugget is from somewhere between 1989 and 1997

"My hands are small, I know, but they're not yours, they are my own. And they're, not yours, they are my own." ~ Jewel

chiral3
Founding Member

Total Posts: 5002
Joined: Mar 2004
 
Posted: 2015-08-22 23:58
Exactly, the last time she was remotely relevant. :-)

Nonius is Satoshi Nakamoto. 物の哀れ

Rashomon


Total Posts: 166
Joined: Mar 2011
 
Posted: 2015-08-23 02:20
Chiral3: I think that view is borne out in the booklet. She cites newspapers and short conversations with major players. She meets with Jamie Dimon in the heat of the panic, but says he wasn't really listening. I do wonder if feistiness barred her from attaining a higher level. (I have never met Ms Tavakoli.)

"My hands are small, I know, but they're not yours, they are my own. And they're, not yours, they are my own." ~ Jewel

pj


Total Posts: 3325
Joined: Jun 2004
 
Posted: 2015-08-28 17:47
Nevertheless a nice read.

OFFENDERS WILL BE TERMINATED

Rashomon


Total Posts: 166
Joined: Mar 2011
 
Posted: 2016-07-09 22:35
Tavakoli's latest is her annotation of William Worthington Fowler's Twenty years of life inside Wall Street: or, revelations of the personal experiences of a speculator. She cites Scott Nelson and Hilary Till.

"My hands are small, I know, but they're not yours, they are my own. And they're, not yours, they are my own." ~ Jewel

rowdyroddypiper
NP Wrestling Champion

Total Posts: 1178
Joined: Apr 2004
 
Posted: 2016-07-11 07:48
This is a pretty solid example of the advice: "If you want people to take you seriously, without having accomplished much, write a book."


Revolution to the mean

Rashomon


Total Posts: 166
Joined: Mar 2011
 
Posted: 2016-08-27 20:36
Beginning to see your p.o.v., rowdyroddypiper. Thanks for the heads up.

"What you gonna dooo, without your ass?" ~ Sun Ra

EspressoLover


Total Posts: 237
Joined: Jan 2015
 
Posted: 2016-08-27 21:10
> there are still people who looks on ratings after this usa mortgage backed CDS crisis?

As much as the ratings agencies get criticized I still have trouble imagining an alternative world without them. There's mountains of investment capital that basically needs to be rock-solid safe. Bank deposits, insurance reserves, money-markets, pensions, etc. Without ratings agencies, what's to stop portfolio managers from taking a spin at the roulette wheel. Just bet all those bank deposits from widows and orphans on Wild Bill's Oil Explorers. There's a major principal-agent problem. For the PM, it's heads I win, tails the depositors lose.

It's not like the customers will discriminate against the cowboys. If Joe Sixpack is buying homeowners insurance, he may be able to compare on a lot of metrics. But he's certainly not doing sophisticated credit analysis on reserve portfolios. Yes, when the clients are institutions, rather than individuals, they can be sophisticated. But then you're back to the principal-agent problem for the downstream clients of those institutions.

The only real workable system is regulation requiring the certification of investment safety by neutral and trust-worthy third-party accreditors. For those accreditors to be at least reasonably neutral and trust-worthy, they have to use some sort of transparent and objective metrics. No objective measure of something as nuanced as investment soundness is 100% reliable. And as long as the metrics are transparent then they're probably game-able. So you're always going to get people structuring the crappiest investments possible in just the right way to get just past the line of rating accreditation.

Every-time it blows up, you get a chorus of critics saying "Tsk, tsk. Should have known better. The writing was on the wall." And it's a pretty shitty flaw in the system. But honestly, what else can actually be done? What is the viable alternative?

goldorak


Total Posts: 986
Joined: Nov 2004
 
Posted: 2016-08-27 22:05
> But honestly, what else can actually be done? What is the viable alternative?

May be get rid of a discrete rating system and go for a continuous measure first?

If you are not living on the edge you are taking up too much space.

Nonius
Founding Member
Nonius Unbound
Total Posts: 12671
Joined: Mar 2004
 
Posted: 2016-08-28 00:14
"
This is a pretty solid example of the advice: "If you want people to take you seriously, without having accomplished much, write a book."


Words of wisdom. I know a lot of people, some even right here on NP (and some who are otherwise rational), who automatically apply some sort of auto-serious-switch-flipping, if some mofo writes a book. or a paper. It's nonsense. Case in point: Irene Aldridge. a=a etc.

Chiral is Tyler Durden

Rashomon


Total Posts: 166
Joined: Mar 2011
 
Posted: 2016-08-29 01:57
> what else could actually be done?

I might put some time during 2016-7 into an open source public facing interactive risk tool. I think the web levels the "reach" playing field relative to broadcast, D3/htmlcharts/sliders are easier for Debbie Dentist to understand and interface with than a C++ program she edits, and open source / forking / again web distribution, might be resistant to gaming.


No idea how I could profit from it, but it seems worth trying.



> switch flipping

This is why to hit pdflatex, right?

"What you gonna dooo, without your ass?" ~ Sun Ra
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