| View previous topic :: View next topic |
| Author |
Message |
editor
Site Admin
Joined: 09 Nov 2003
Posts: 2940
|
 Posted: Thu May 18, 2006 3:44 pm Post subject: Hedge Fund Gamblers |
 |
|
Hedge Fund Gamblers:
Barron's Online
Minting Money
The Goldman Sachs Way
By Michael Santoli
April 10/06
| Quote: | Here is what Goldman is not, despite what alarmists say: It is not a huge hedge fund, or an impenetrable "black box," though the firm offers fewer details about its trading operations than some shareholders would like. Nor is it a leveraged proxy for stock prices, or a surfer of the yield curve, or a mere play on oil prices through its commodities business. Goldman is not a place where folks with MBAs and nice golf strokes simply roll the dice hoping for a seven. No gambler, it is much more like "the house."
Though the firm might bristle at the suggestion its clients are gamblers, the reality is that those clients, including many hedge funds, lay the bets, on which Goldman helps set the odds. And, like the casino credit window, Goldman can elect to lend them money on its own terms, or not. |
Link to this entry
http://pokerpulse.com/news/viewtopic.php?p=2521#2521
Last edited by editor on Mon Oct 22, 2007 11:09 am; edited 2 times in total |
|
| Back to top |
|
 |
editor
Site Admin
Joined: 09 Nov 2003
Posts: 2940
|
| Posted: Thu May 18, 2006 3:53 pm Post subject: |
|
|
Forbes
Magazine Subscription
Precious Commodities
Even if you have missed the run-up
in copper, oil and gold so far, you ought to think
about adding hard assets to your portfolio. Futures
give you a kind of diversification you can't get
from stocks and bonds.
By Daniel Fisher
May 22/06
| Quote: | It's the kind of return investors crave and hedge fund managers are paid outrageous fees to deliver: 11% a year, unaffected by the gyrations of the stock and bond markets. But you don't have to hand some money manager enough cash to build a new wing on a Greenwich mansion to get this type of performance. Commodities futures have been grinding it out for decades, often seemingly independent of interest rates, market crashes and even the prices of commodities themselves.
You probably thought that commodities were nothing a casino game. A place to double your money in copper if you're lucky or to get wiped out if you're not. Two finance professors, however, have evidence that commodity futures are not merely a form of gambling but an extremely useful tool in a diversified portfolio.
...futures contracts have delivered handsome returns, averaging almost 1% a month since 1959. (From the opening paragraphs at p. 86) |
Link to this entry
http://pokerpulse.com/news/viewtopic.php?p=2522#2522
Last edited by editor on Mon Oct 22, 2007 11:07 am; edited 2 times in total |
|
| Back to top |
|
|
editor
Site Admin
Joined: 09 Nov 2003
Posts: 2940
|
| Posted: Mon Mar 19, 2007 10:39 am Post subject: |
|
|
Wrong Way
The Fall of Conrad Black
Hardcover
By Jacquie McNish and Sinclair Stewart
| Quote: | Black was yanked out of his Roosevelt reverie in early March, when he met with one of Hollinger International's shareholders, Leon "Lee" Cooperman. The fifty-nine-year-old was a legendary Wall Street stock picker who in 1991, after two decades as a stock strategist at Goldman Sachs Group, Inc., had formed his own hedge fund, Omega Advisors, Inc. Cooperman's track record was impressive. Omega's funds consistently bested the market, even through the crash of 2000 and 2001, but by 2002 Omega was dragged into the bear market's maw. Pulling the fund down was a big bet on troubled conglomerate Tyco International Ltd., which was being rocked by a scandal about the spending excesses of its top executives. Another hot spot in Omega's portfolio was Hollinger.
Two years earlier, in 2000, Cooperman had first visited Black in London to get a better measure of Hollinger's CEO. Like Tweedy's partners, Cooperman is a no-nonsense long-time value investor who loves placing bets on unfashionable stocks trading at deep discounts. Curious that fellow value investors were buying Hollinger International, Cooperman considered the advice of one of his analysts who believed Hollinger International's stock was hugely undervalued. Less certain were the ambitions of its controlling shareholder and CEO Conrad Black. Was he committed to unlocking Hollinger International's buried value? Cooperman decided to check for himself and he arranged to visit Black at his London home.
...Cooperman, a self-made multi-millionaire who started life as the son of a plumber in New York's South Bronx (see Mel Rosenthal: Photographs from In the South Bronx of America), was not impressed. He thought, I'm worth a lot more than Conrad Black and I don't need a butler. (From Chapter Six, Epidemic of Shareholder Idiocy, pgs. 75-76) |
| Quote: | | ... Southeastern (Asset Management) was yet another value investor that had been attracted to Hollinger International in the late 1990s. Significantly larger than Hollinger's other value investors, with $18 billion worth of assets under its administration, Southeastern liked to place larger bets on a smaller portfolio of companies that it believed were underpriced. It had placed a huge wager on Hollinger, buying 17 million, or 18 per cent, of its shares outstanding, making it Hollinger's largest shareholder after Black. (-- pgs. 93-94) |
| Quote: | Southeastern's president
(G.l) Staley Cates felt ill when he saw the news on his computer in his Memphis office. He and his boss Mason Hawkins had been wrong about Black and they had been wrong about the impossible odds they had said Tweedy would face if it opposed the press lord. Thanks to Tweedy's demand for a special investigation, Black had been exposed as a CEO who allegedly helped himself to millions of dollars without board approval. (From Chapter 12, Gotcha, p. 181) |
Here's what the Columbia Business School had to say about Cooperman in advance of a 2006 speaking engagement:
| Quote: | Leon G. Cooperman: After 25 years of service, Lee retired from his positions as a General Partner of Goldman, Sachs & Co. and as Chairman and Chief Executive Officer of Goldman Sachs Asset Management at the end of 1991 in order to organize a private investment partnership, under the direction of Omega Advisors, Inc. At Goldman Sachs, Lee spent 15 years as Partner and from 1990 to 1991, and as Counsel to the Management Committee. In 1989, he became Chairman and Chief Executive Officer of Goldman Sachs Asset Management and was Chief Investment Officer of the equity product line including managing the GS Capital Growth Fund, an open-end mutual fund, for one and one-half years. Prior to those appointments, Lee spent 22 years in the Investment Research Department as Partner-in-charge, Co-Chairman of the Investment Policy Committee and Chairman of the Stock Selection Committee. For nine consecutive years, Lee was voted the number one portfolio strategist in the Institutional Investor All-America Research Team survey.
As a designated Chartered Financial Analyst, Lee is a senior member and past President of the New York Society of Security Analysts. Lee is a member of the Board of Overseers of Columbia Business School, a member of the Board of Directors of Automatic Data Processing, Inc., a Trustee of Saint Barnabas Hospital, and Chairman of the Saint Barnabas Development Foundation, serves on the National Board of Trustees of the Crohn's and Colitis Foundation of America, Inc., a member of the Board of Directors of the Cancer Research Fund of the Damon Runyon-Walter Winchell Foundation, and a member of the Investment Committee of the Museum of Modern Art. Lee received his MBA from Columbia University and his undergraduate degree from Hunter College. |
Link to this entry
http://pokerpulse.com/news/viewtopic.php?p=2779#2779
Last edited by editor on Wed Jan 21, 2009 10:29 am; edited 9 times in total |
|
| Back to top |
|
|
editor
Site Admin
Joined: 09 Nov 2003
Posts: 2940
|
| Posted: Mon Oct 22, 2007 11:33 am Post subject: |
|
|
The New Yorker
Magazine Subscription
Annals of Finance
The Blow-Up Artist
Can Victor Niederhoffer survive
another market crisis?
By a simpering John Cassidy
| Quote: | On a wall opposite Victor Niederhoffer's desk is a large painting of the Essex, a Nantucket whaling ship that sank in the South Pacific in 1820, after being attacked by a giant sperm whale, and that later served as the inspiration for "Moby Dick." The Essex's captain, George Pollard, Jr., survived, and persuaded his financial backers to give him another ship, but he sailed it for little more than a year before it foundered on a coaral reef. Pollard was ruined, and he ended his days as a night watchman. The painting, which Niederhoffer, a sixty-three-year-old hedge-fund manager, acquired after losing all his clients' money - and a good deal of his own - in the Thai stock market crash of 1997, serves as an admonition against the incaution to which he, a notorious risk-taker, is prone, and as a reminder of the precariousness of his success.
... Niederhoffer, a former fnational squash champion who is considered one of the most talented Americans to have played the game, relishes the acclaim, but he knows that in his field circumstances can change quickly. By the end of August, his funds were in trouble, and on Wall Street rumors circulated that he would soon be out of business again. Niederhoffer had been worried all summer, but he tried to project a wry, self-deprecating humor. "If an event like 1997 occurred again, my dependents would be up the creek, and I would be a night watchman somewhere, just like Captain Pollard," he said to me when I visited him at his home one norning in June. "In America, they give you a second chance but not a third."
... The Chicago Merc is a futures market, where people trade contracts that give them the right to purchase a particular commodity at a specified date in the future. Oroginally, the items traded on the exchange were physical commodities, such as eggs, butter, and pigs, and its main customers were farmers and food companies. In recent decades, futures trading has become the abstract; professional speculators now use the exchange to place bets on the prices of financial securities, such as stocks, bonds, and currencies - a development that Niederhoffer, a former math prodigy who has a Ph.D. in economics, has exploited. He likes to be at his desk well before the Chicago market opens, especially on days when he has big positions riding overnight. He is mainly a short-term operator - he bets on how prices will move int he subsequent few minutes, hours, or days - and most of his knowledge of current events comes from Bloomberg. (He doesn't read newspapers or watch television.) When he arrives at his office, he turns on his computer and reads about developments in the Asian and European markets, which often foreshadow the day's action in the United States. (-- pgs. 56-58) |
Link to this entry
http://pokerpulse.com/news/viewtopic.php?p=3075#3075 |
|
| Back to top |
|
|
editor
Site Admin
Joined: 09 Nov 2003
Posts: 2940
|
| Posted: Wed Dec 19, 2007 3:38 pm Post subject: |
|
|
Passionate Minds
The great love affair of the Englightenment, featuring the scientist Émilie du Châtelet, the poet Voltaire, sword fights, book burnings, assorted kings, seditious verse, and the birth of the modern world
Hardcover
By David Bodanis
| Quote: | She (Émilie) and the great writer Voltaire were lovers for nearly a decade, though they certainly took their time settling down, having to delay for frantic gallopings across France, sword fights in front of besieged German fortresses, a wild affair (hers) with a gallant pirate's son, and a deadly burning of books (his) by the public executioner at the base of the grand stairwell of the Palais de Justice in Paris. There was also rigging the French national lottery to guarantee a multimillion-franc payout, and investing in North African grain futures with the proceeds.
... When they ran out of money, Emilie would sometimes resort to the gambling tables at Versailles - since she was so much quicker than anyone else at mathematics, she could often be counted on to win. Voltaire wrote proudly that "the court ladies, playing cards with her in the company of the queen, were far from suspecting that they were sitting next to Newton's commentator."
Voltaire wasn't much of a scientist, but Emilie was a skilled theoretician. Once, working secretly at night at the chateau over a single intense summer month, hush ing the servants not to spoil the surprise for Voltaire, she came up with insights on the nature of light that set the stage for the future discovery of photography, as well as of infrared radiation. Her later work was even more fundamental, for she played a key role in transforming Newton's thought for the modern era. The research she did on what later became termed the conservation of energy was crucial here, and the "squared" in Einstein's famous equation E=mc2 (squared) came, in fact, directly from her work. (From the Preface, pgs. 1-2) |
The lottery scam:
| Quote: | ... The city government had recently defaulted on its municipal bonds, which meant that there were a lot of wealthy individuals who owned valueless bonds. If the government left it at that, thos individuals whould be very wary of ever investing in future bond issues. To show good faith - and make up for some of the investors' losses - the city government now decided to offer a lottery, to which only owners of those now valueless bonds could apply. Since the angry bondholders wouldn't participate in an ordinary lottery (having been so misled before), the government decided to go further and add substantial extra funds to the total lottery amount. The government felt this was safe, since it expected only a few holders of the original bonds to invest, despite the sweetener of the increased payment per ticket.
What it didn't reckon with was Voltaire's ingenuity, aided by his new friend the mathematician La Condamine. Voltaire had been audacious and creative in leterature. Now he applied the same skills to finance. What if someone went around and bought all the valueless bonds that were in default? It was easy enough, for the owners of the bonds were still so upset at having lost all their money in the city's original default that they didn't really believe the promises the city gave that there would be extra money in the lottery.
In fact, though, these bonds weren't quite valueless, for Voltaire - and La Condamine, and a very few others he brought into his syndicate - weren't blinded by that recent experience of financial loss, and so understood that the bonds were "tickets" they could use to enter the city's lottery. And since the city genuinely had added extra funds to sweeten the lottery... (From Exile and Return, pgs. 59-60) |
The tax scam (foiling the Fontainebleu cheats into the bargain):
| Quote: | What she realized, after just a few weeks, was that there would be a great demand in France for some organization that could supply decent streams of cash at reasonable interest rates. Large workshops and trading companies needed that, but there was no stock market and no well-developed bond market to supply it.
Now she thought of another way. Taxes in France weren't collected directly by the government - as we saw, there was no civil service capable of that. Instead, the king let a few private individuals collect taxes, for a high fee. After those individuals had collected enough to pay that fee, they got to keep the rest.
She couldn't take over that role, for the individuals who had the rights to it wouldn't let go. But those tax collectors themselves often needed money to organize the large private bureaucracies they required to collect taxes from across the nation. What if she offered to pay them for the right to get some of that money they'd earn in the future? Since hardly anyone was aware of this opportunity, she could buy what they'd be earning in the future at a low price. Once she had the tax collectors signed up, she could then tell the court gamblers (whose money she'd "lost"), that she'd pay them back by giving them some of that future money when it arrived.
It was a modern form of derivatives, and she didn't even need to keep it running until she had the full 84,000 francs she owed. The Fontainebleau cheats knew they'd gone too far, since they of course had also been violating the royal honor by rigging the games played at the queen's table. In exchange for accepting partial payment as a settlement, Emilie quietly promised that she wouldn't use her family connections to start an embarrassing investigation into how they'd arranged their cheating. The whole maneuver didn't cost Emilie anything, for the tax collectors were so dim that they had accepted the promise of a fairly low amount of money for the right to their future earnings. When those earnings did start coming in, months or years later, Emilie would get a profit. (From the chapter, To Sceaux, pgs. 217-218) |
Link to this entry
http://pokerpulse.com/news/viewtopic.php?p=3278#3278 |
|
| Back to top |
|
|
editor
Site Admin
Joined: 09 Nov 2003
Posts: 2940
|
| Posted: Wed May 07, 2008 8:25 am Post subject: |
|
|
Harvard Business Review
Magazine Subscription
How Resilience Works
Confronted with life's hardships, some people snap, and others snap back
By Diane L. Coutu
Sept. 1/02
| Quote: | Prior to Setpember 11, 2001, Morgan Stanley, the famous investment bank, was the largest tenant in the World Trade Center. The company had some 2,700 employees working in the south tower on 22 floors between the 43rd and the 74th. On that horrible day, the first plane hit the north tower at 8:46 a.m., and Morgan Stanley started evacuating just one minute later, at 8:47 a.m. When the second plane crashed into the south tower 15 minutes after that, Morgan Stanley's offices were largely empty. All told, the company lost only seven employees despite receiving an almost direct hit.
Of course, the organization was just plain lucky to be in the second tower. Cantor Fitzgerald, whose offices were hit in the first attack, couldn't have done anything to save its employees. Still, it was Morgan Stanley's hard-nosed realism that enabled the company to benefit from its luck. Soon after the 1993 attack on the World Trade Center, senior management recognized that working in such a symbolic center of U.S. commercial power made the company vulnerable to attention from terrorists and possible attack.
With this grim realization, Morgan Stanley launched a program of preparedness at the micro level. Few companies take their fire drills seriously. Not so Morgan Stanley, whose VP of security for the Individual Investor Group, Rick Rescorla, brought a military discipline to the job. Rescorla, himself a highly resilient, decorated Vietnam vet, made sure that people were fully drilled about what to do in a catastrophe. When disaster struck on September 11, Rescorla was on a bullhorn telling Morgan Stanley employees to stay calm and follow their well-practised drill, even though some building supervisors were telling occupants that all was well. Sadly Rescorla himself, whose life story has been widely covered in recent months, was one of the seven who didn't make it out. (-- pgs. 49-50) |
Link to this entry
http://pokerpulse.com/news/viewtopic.php?p=3766#3766
Last edited by editor on Fri Apr 17, 2009 8:46 am; edited 2 times in total |
|
| Back to top |
|
|
editor
Site Admin
Joined: 09 Nov 2003
Posts: 2940
|
| Posted: Wed Oct 22, 2008 5:39 pm Post subject: |
|
|
Fortune
Magazine Subscription
The $55 Trillion Question
The financial crisis has put a spotlight on the obscure world of credit default swaps - which trade in a vast, unregulated market that most people haven't heard of and even fewer understand. Will this be the next disaster?
By Nicholas Varchaver and Katie Benner
Oct. 13/08
| Quote: | ONE REASON THE MARKET TOOK OFF is that you don't have to own a bond to buy a CDS on it - anyone can place a bet on whether a bond will fail. Indeed the majority of CDS now consists of bets on other people's debt. That's why it's possible for the market to be so big: The $54.6 trillion in CDS contracts completely dwarfs total corporate debt, which the Securities Industry and Financial Markets Association puts at $6.2 trillion, and the $10 trillion it counts in all forms of asset-backed debt.
"It's sort of like I think you're a bad driver and you're going to crash your car," says Greenberger, formerly of the CFTC. "So I go to an insurance company and get collision insurance on your car because I think it'll crash and I'll collect on it." That's precisely what the biggest winners in the subprime debacle did. Hedge fund star John Paulson of Paulson & Co., for example, made $15 billion in 2007, largely by using CDS to bet that other investors' subprime mortgage bonds would default.
So what started out as a vehicle for hedging ended up giving investors a cheap, easy way to wager on almost any event in the credit markets. In effect, credit default swaps became the world's largest casino. As Christopher Whalen, a managing director of Institutional Risk Analytics, observes, "To be generous, you could call it an unregulated, uncapitalized insurance market. But really, you would call it a gaming contract." (emphasis added)
There's another big difference between casino gambling and CDS trading: Gambling has strict government regulation. The federal government has long shied away from any oversight of CDS. The CFTC floated the idea of taking an oversight role in the late '90s, only to find itself opposed by Federal Reserve chairman Alan Greenspan and others. Then, in 2000, Congress, with the support of Greenspan and Treasury Secretary Lawrence Summers, passed a bill prohibiting all federal and most state regulation of CDS and other derivatives. In a press release at the time, co-sponsor Senator Phil Gramm - most recently in the news when he stepped down as John McCain's campaign co-chair this summer after calling people who talk about a recession "whiners" - crowed that the new law "protects financial institutions from over-regulation ... and it guarantees that the United States will maintain its global dominance of financial markets." (The authors of the legislation were so bent on warding off regulation that they had the bill specify that it would "supersede and preempt the application of any state or local law that prohibits gaming ...") Not everyone was as sanguine as Gramm. In 2003 Warren Buffett famously called derivatives "financial weapons of mass destruction." (-- pgs. 138-140) |
Link to this entry
http://pokerpulse.com/news/viewtopic.php?p=4017#4017 |
|
| Back to top |
|
|
editor
Site Admin
Joined: 09 Nov 2003
Posts: 2940
|
| Posted: Wed Jan 21, 2009 8:52 am Post subject: |
|
|
From Losing Streak:
Vanity Fair
Magazine Subscription
Profiles in Panic
With Wall Street hemorrhaging jobs and assets, even many of the wealthiest players are retrenching. Others, like the Lehman Brothers bankers who borrowed against their millions in stock, have lost everything. Hedge-fund managers try to sell their luxury homes, while trophy wives are hocking their jewelry. The pain is being felt on St. Barth’s and at Sotheby’s, on benefit-gala committees and at the East Hampton Airport, as the world of the Big Rich collapses, its culture in shock and its values in question.
By Michael Shnayerson
January, 2009
| Quote: | What’s definitely gone—along with Lehman Brothers and Bear Stearns—is leverage, at least to the dizzying degree it was recently used by Wall Street’s investment banks, hedge funds, and private-equity firms to parlay each dollar of their assets into $10, $20, even $30 or more of credit to make gargantuan deals and profits. The credit crunch has made such leverage as quaint as the market in Dutch tulips. Without it, Wall Street salaries have already started drifting gently back to earth like so many limp balloons.
Gone, too, are jobs—lots and lots of them. Along with a sizable portion of Lehman’s 26,000 worldwide, and Bear Stearns’s 14,000, Wall Street firms across the board—even Goldman Sachs—are cutting back, and that pain radiates out to the limousine drivers and caterers and lawyers and personal trainers and restaurant owners and real-estate brokers who rely on Wall Street clients, not to mention to the many nonprofits and charities that have grown accustomed to Wall Street money. The latest estimate of jobs New York will lose, both on and off Wall Street, is 160,000. Governor David Paterson says the state’s budget deficit has already reached $12.5 billion. In New York City, where Wall Street accounts for more than a quarter of the tax revenues, Mayor Michael Bloomberg thinks the financial-sector crisis will leave a $2 billion hole in the next fiscal year’s budget. ...
There were, to be sure, some big-name “blowups” as the market began to implode. Here was Sumner Redstone, chairman of Viacom and CBS, who had to sell $233 million worth of Viacom and CBS stock in order to pay down part of an $800 million loan. T. Boone Pickens, legendary Texas oilman, was another blowup, and so was Chesapeake Energy’s Aubrey McClendon, forced by a margin call to sell 94 percent of his 32 million company shares into the bear market. (Worth $2.2 billion last July, the shares were sold in October for $569 million.) Kirk Kerkorian, 91, has lost about $12 billion on his 54 percent ownership stake in MGM Mirage, the casino and hotel operator that owns almost half the hotel rooms on the Las Vegas Strip, including those in the Bellagio, the MGM Grand, the Mirage, and Mandalay Bay. The company’s stock is down 86 percent this year, and its bonds were downgraded deeper into junk status in October. Kerkorian has reportedly told friends that he “lived one year too long.” (He now claims he never said it.) Nevertheless, he and the other three men are all still billionaires. ...
These were the stories known because they involved large chunks of publicly traded stock. But as October turned into one of the worst market months since October l929, rumors ran rampant about which high-flying hedge funds would crash as they tried in vain to unwind their investments in derivatives and other unregulated securities, many of them entwined with subprime mortgages. With their lenders forcing them to sell assets at new lows, and their investors trying to pull their money out, the hedge funds were caught in the middle: the gilded age’s biggest winners were now among its biggest losers. Would Ken Griffin’s Citadel be the first big hedge fund to go? Or Fortress—whose clients are trying to redeem $4.5 billion? In fact, the first big tree down following that dreadful month was Tontine Associates, which managed $11 billion through its four hedge funds and whose activist founder, Jeffrey Gendell, had become a billionaire by generating more than 100 percent returns in 2003 and 2005. After two of his funds had lost two-thirds of their value, Gendell bowed to the inevitable and is expected to close them. Days later came word that Steven Rattner was closing his small but high-profile media hedge fund, Quadrangle Equity Investors, after approximately 25 percent year-to-date losses.
Of those 10,000 hedge funds, as many as half may join the casualty list in the next few years. ...
Nowhere is the downturn more dramatic, though, than downtown, where new condominium towers by cutting-edge architects vie for a market that’s almost vanished overnight: young Wall Streeters with bonuses to throw at sleek, overpriced apartments in Richard Meier–knockoff buildings. For the developers, it’s proved a game of high-stakes musical chairs. Those who got their buildings up by early 2007 have sold many of their units by now. Those who started selling after Bear Stearns’s collapse, last March, are struggling, as the Web site StreetEasy confirms. And for those just getting started, good luck.
In the financial district itself, hotel impresario André Balazs embarked on the 47-story William Beaver House in 2006. StreetEasy’s Sofia Kim suggests the name was meant—or at least interpreted—as a naughty wink to hard-partying bachelor traders. With the Tsao & McKown–designed building due to open this month, 209 of its 320 mostly one- and two-bedroom units have sold at top-of-the-market prices—from $900,000 to $6 million. But the rest are either for sale or being held in reserve. That’s a lot of unsold units. ...
Philip K. Howard, a New York lawyer and social critic whose new book is Life Without Lawyers, sees a sea change which was overdue. Every 30 years or so, he notes, the country has to redefine its social values. We’ve just reached the next time. “So this end of the new gilded era—it’s like a bucket that spilled, and finally the money spilled out, and we were left with a culture whose sense of purpose and responsibility were lacking. And now there’s a real need for people, and society as a whole, to rethink and re-structure their values.”
“I may be the only one who’s thrilled by this recession,” says the wife of one London private-equity manager who took his lumps this fall. “It just means we’ll have to get possibly another job. But the bottom line is that it is just money. When you realize that you have enough—your health and a roof and good food and your family—you have to just feel lucky.” (-- pgs. 75-146) |
Link to this entry
http://pokerpulse.com/news/viewtopic.php?p=4135#4135 |
|
| Back to top |
|
|
editor
Site Admin
Joined: 09 Nov 2003
Posts: 2940
|
| Posted: Sun Feb 01, 2009 9:28 am Post subject: |
|
|
The New York Times Magazine
Magazine Subscription
Risk Mismanagement
Were the measures used to evaluate Wall Street trades flawed? Or was the mistake ignoring them?
By Joe Nocera
Jan. 4/09
| Quote: | As we approached his car, he (Nassim Nicholas Taleb, the best-selling author of The Black Swan) began talking about his own performance in 2008. Although he is no longer a full-time trader, he remains a principal in a hedge fund he helped found, Black Swan Protection Protocol. His fund makes trades that either gain or lose small amounts of money in normal times but can make oversize gains when a black swan appears. Taleb likes to say that, as a trader, he has made money only three times in his life — in the crash of 1987, during the dot-com bust more than a decade later and now. But all three times he has made a killing. With the world crashing around it, his fund was up 65 to 115 percent for the year. Taleb chuckled. “They wouldn’t listen to me,” he said finally. “So I decided, to hell with them, I’ll take their money instead.” ...
... There was so much schadenfreude associated with L.T.C.M. — it had Nobel Prize winners among its partners! — that it was easy for the rest of Wall Street to view its fall as an example of comeuppance. And for a hedge fund that promoted the ingeniousness of its risk measures, it took far greater risks than it ever acknowledged.
For these reasons, other firms took to rationalizing away the fall of L.T.C.M.; they viewed it as a human failure rather than a failure of risk modeling. The collapse only amplified the feeling on Wall Street that firms needed to be able to understand their risks for the entire firm. Only VaR could do that. And finally, there was a belief among some, especially after the crisis abated, that the events that brought down L.T.C.M. were one in a million. We would never see anything like that again in our lifetime.
So instead of diminishing in importance, VaR become a more important part of the financial scene. The Securities and Exchange Commission, for instance, worried about the amount of risk that derivatives posed to the system, mandated that financial firms would have to disclose that risk to investors, and VaR became the de facto measure. If the VaR number increased from year to year in a company’s annual report, it meant the firm was taking more risk. Rather than doing anything to limit the growth of derivatives, the agency concluded that disclosure, via VaR, was sufficient.
That, in turn, meant that even firms that had resisted VaR now succumbed. It meant that chief executives of big banks and investment firms had to have at least a passing familiarity with VaR. It meant that traders all had to understand the VaR consequences of making a big bet or of changing their portfolios. Some firms continued to use VaR as a tool while adding other tools as well, like “stress” or “scenario” tests, to see where the weak links in the portfolio were or what might happen if the market dropped drastically. But others viewed VaR as the primary measure they had to concern themselves with. ...
And yet, instead of dismissing VaR as worthless, most of the experts I talked to defended it. The issue, it seemed to me, was less what VaR did and did not do, but how you thought about it. Taleb says that because VaR didn’t measure the 1 percent, it was worse than useless — it was downright harmful. But most of the risk experts said there was a great deal to be said for being able to manage risk 99 percent of the time, however imperfectly, even though it meant you couldn’t account for the last 1 percent.
“If you say that all risk is unknowable,” Gregg Berman said, “you don’t have the basis of any sort of a bet or a trade. You cannot buy and sell anything unless you have some idea of the expectation of how it will move.” In other words, if you spend all your time thinking about black swans, you’ll be so risk averse you’ll never do a trade. Brown put it this way: “NT” — that is how he refers to Nassim Nicholas Taleb — “says that 1 percent will dominate your outcomes. I think the other 99 percent does matter. There are things you can do to control your risk. To not use VaR is to say that I won’t care about the 99 percent, in which case you won’t have a business. That is true even though you know the fate of the firm is going to be determined by some huge event. When you think about disasters, all you can rely on is the disasters of the past. And yet you know that it will be different in the future. How do you plan for that?” ... (-- pgs. 31-50) |
| Quote: | The Black Swan
The Impact of the Highly Improbable
Hardcover
By Nassim Nicholas Taleb
|
Link to this entry
http://pokerpulse.com/news/viewtopic.php?p=4147#4147
Last edited by editor on Sun Mar 22, 2009 2:00 pm; edited 2 times in total |
|
| Back to top |
|
|
editor
Site Admin
Joined: 09 Nov 2003
Posts: 2940
|
| Posted: Sun Mar 22, 2009 1:43 pm Post subject: |
|
|
Vanity Fair
Magazine Subscription
Wall Street on the Tundra
Iceland's de facto bankruptcy - its currency (the krona) is kaput, its debt is 850 percent of G.D.P., its people are hoarding food and cash and blowing up their new Range Rovers for the insurance - resulted from a stunning collective madness. What led a tiny fishing nation, population 300,000, to decide, around 2003, to re-invent itself as a global financial power? In Reykjavik, where men are men, and the women seem to have completely given up on them, Michael Lewis follows the peculiarly Icelandic logic behind the meltdown
April, 2009
| Quote: | Next, through a dark landscape of snow-spackled black volcanic rock that may or may not be lunar, but that looks so much as you would expect the moon to look that nasa scientists used it to acclimate the astronauts before the first moon mission. An hour later we arrive at the 101 Hotel, owned by the wife of one of Iceland’s most famous failed bankers. It’s cryptically named (101 is the city’s richest postal code), but instantly recognizable: hip Manhattan hotel. Staff dressed in black, incomprehensible art on the walls, unread books about fashion on unused coffee tables—everything to heighten the social anxiety of a rube from the sticks but the latest edition of The New York Observer. It’s the sort of place bankers stay because they think it’s where the artists stay. Bear Stearns convened a meeting of British and American hedge-fund managers here, in January 2008, to figure out how much money there was to be made betting on Iceland’s collapse. (A lot.) The hotel, once jammed, is now empty, with only 6 of its 38 rooms occupied. The restaurant is empty, too, and so are the small tables and little nooks that once led the people who weren’t in them to marvel at those who were. A bankrupt Holiday Inn is just depressing; a bankrupt Ian Schrager hotel is tragic.
With the financiers who once paid a lot to stay here gone for good, I’m given a big room on the top floor with a view of the old city for half-price. I curl up in silky white sheets and reach for a book about the Icelandic economy—written in 1995, before the banking craze, when the country had little to sell to the outside world but fresh fish—and read this remarkable sentence: “Icelanders are rather suspicious of the market system as a cornerstone of economic organization, especially its distributive implications.” ...
Lean and hungry-looking, wearing genuine rather than designer stubble, Alfsson still looks more like a trawler captain than a financier. He went to sea at 16, and, in the off-season, to school to study fishing. He was made captain of an Icelandic fishing trawler at the shockingly young age of 23 and was regarded, I learned from other men, as something of a fishing prodigy—which is to say he had a gift for catching his quota of cod and haddock in the least amount of time. And yet, in January 2005, at 30, he up and quit fishing to join the currency-trading department of Landsbanki. He speculated in the financial markets for nearly two years, until the great bloodbath of October 2008, when he was sacked, along with every other Icelander who called himself a “trader.” His job, he says, was to sell people, mainly his fellow fishermen, on what he took to be a can’t-miss speculation: borrow yen at 3 percent, use them to buy Icelandic kronur, and then invest those kronur at 16 percent. “I think it is easier to take someone in the fishing industry and teach him about currency trading,” he says, “than to take someone from the banking industry and teach them how to fish.”
He (Stefan Alfsson) then explained why fishing wasn’t as simple as I thought. It’s risky, for a start, especially as practiced by the Icelandic male. “You don’t want to have some sissy boys on your crew,” he says, especially as Icelandic captains are famously manic in their fishing styles. “I had a crew of Russians once,” he says, “and it wasn’t that they were lazy, but the Russians are always at the same pace.” When a storm struck, the Russians would stop fishing, because it was too dangerous. “The Icelanders would fish in all conditions,” says Stefan, “fish until it is impossible to fish. They like to take the risks. If you go overboard, the probabilities are not in your favor. I’m 33, and I already have two friends who have died at sea.”
It took years of training for him to become a captain, and even then it happened only by a stroke of luck. When he was 23 and a first mate, the captain of his fishing boat up and quit. The boat owner went looking for a replacement and found an older fellow, retired, who was something of an Icelandic fishing legend, the wonderfully named Snorri Snorrasson. “I took two trips with this guy,” Stefan says. “I have never in my life slept so little, because I was so eager to learn. I slept two or three hours a night because I was sitting beside him, talking to him. I gave him all the respect in the world—it’s difficult to describe all he taught me. The reach of the trawler. The most efficient angle of the net. How do you act on the sea. If you have a bad day, what do you do? If you’re fishing at this depth, what do you do? If it’s not working, do you move in depth or space? In the end it’s just so much feel. In this time I learned infinitely more than I learned in school. Because how do you learn to fish in school?”
This marvelous training was as fresh in his mind as if he’d received it yesterday, and the thought of it makes his eyes mist.
“You spent seven years learning every little nuance of the fishing trade before you were granted the gift of learning from this great captain?” I ask.
“Yes.”
“And even then you had to sit at the feet of this great master for many months before you felt as if you knew what you were doing?”
“Yes.”
“Then why did you think you could become a banker and speculate in financial markets, without a day of training?”
“That’s a very good question,” he says. He thinks for a minute. “For the first time this evening I lack a word.” |
Link to this entry
http://pokerpulse.com/news/viewtopic.php?p=4234#4234 |
|
| Back to top |
|
|
|
FAQ 
Search 
Memberlist 
Usergroups
Profile 
Log in to check your private messages 
Log in 
