October 2010
1 post
Importance of LSAT Scores & UGPA in Law School...
[Ed. note: I found some more data that indicate that the selection bias of the LawSchoolNumbers.com data used to produce the graphs below is very significant. Some acceptance rates are grossly overstated. I am attempting a fix.]
Every year around this time, thousands of people applying to law school stress about their prospects of being admitted to their top choice of school. As many applicants...
August 2010
1 post
Sense & Securitizability: Theater Review of...
Past portents of the far future can seem oracular when they hit or campy when they miss. But accurate or not, they can have lasting appeal. Imagining the near future, however, is a riskier gambit—flirting between sage social commentary and irrelevancy—and has a much shorter shelf life. For Felipe Ossa’s pre-crisis script for “Monetizing Emma,” set in the 2013 world...
April 2010
1 post
Reverse Engineering the ABACUS Timeline
[Hat Tips: Many thanks to @alea_, @crookery_, and @interfluidity.]
If only I had the offering circular for the Goldman-structured synthetic sub-prime mortgage CDO ABACUS 2007-AC1, which ostensibly closed on April 26, 2007, I might be able to fill in some of the gaps in what’s been publicly reported/leaked about the deal. Alas, I don’t, and so I’m left to speculate. I’ll try to sum up what I...
March 2010
1 post
Waste Not
Baruch at Ultimi Barbarorum tried his hand at motivational speaking this weekend, imploring the econoblogosphere to get its act together on financial reform. I applaud the effort, but as pep talks go, this one was a bit of downer:
With [the economy recovering and memories of the darkest days of the financial crisis receding] I fear some of the spice has gone out of the commentary… [T]he...
February 2010
3 posts
Those Greek Swaps
Heidi Moore has a great write-up of the Goldman-Greece swap story. Do read it. But don’t let her convince you that there’s nothing in this story to lend credible ammunition to the squid-eating Matt Taibbis of the world. Moore lets Goldman and the rest of the banks off too easy.
But the swaps weren’t illegal, and Goldman was giving its client — Greece — what it asked for. The...
On the Impossibility of Measuring Model Risk
This week The Economist poked a little fun at the quants:
JPMorgan Chase holds $3 billion of “model-uncertainty reserves” to cover mishaps caused by quants who have been too clever by half. If you can make provisions for bad loans, why not bad maths too?
And in response to this revelation, Francine McKenna wondered how the auditors could have signed-off on the models:
If you need $3 billion...
Deposit Insurance and Moral Hazard
Over the weekend, I listened to Russ Roberts’ EconTalk interview with Charles Calomiris. There’s far too much in this interview to unpack in a single post, so for now I only want to address Calomiris’ take on deposit insurance. He’s against it, and pins deposit insurance and other risk subsidies as the primary cause of many recent financial crises. I’m for it.
...
January 2010
1 post
To Dos
I haven’t written anything here in a long while. Sorry about that. Thanks to some encouraging words from Mike at Rortybomb, I think I’ll hammer out a couple posts soon. In the meantime, I’m going to use this space to make note of the things I want to write about:
On the Connection (or Lack Thereof) between TBTF and Systemic Risk
On Moral Hazard and Deposit Insurance,...
July 2009
2 posts
Regulatory Capital Equivalence Principle
Caution: Though brief, this post will likely be impenetrable to anyone who doesn’t have a working understanding of regulatory capital requirements, securitization, and how rating agencies fit into both.
Here’s an idea for Basel III. Next time we design new capital requirement rules, let’s try to put in the following fail-safe principle to curtail the regulatory arbitrage.
...
Zombie Securitization Market (and other bad...
Securitization refuses to die. Bloomberg is reporting that Morgan Stanley is planning to breathe new life into a recently downgraded CLO originally packaged by Goldman Sachs in 2007. Some key details are lacking in the Bloomberg piece, but here’s what I can piece together from the article and some other digging. I’ll do my best to put it in plain English so you can see how (I think)...
May 2009
1 post
That $34B Headline Number
Both the WSJ and NYT have front page news on newly leaked figures regarding Treasury’s stress test of Bank of America. Conveniently, their numbers match—$33.9B. Unfortunately, that’s about where the congruence ends.
WSJ:
Regulators have told Bank of America Corp. that the company needs to take steps to address a roughly $34 billion capital shortfall based on results of the...
April 2009
1 post
5 tags
Hedging is Evil: The Fatal Flaw in the Case for...
In my first (and to date only) substantive post, I argued that derivatives in general and CDS in particular are misunderstood and unfairly maligned. That’s still true, I believe. But on further contemplation, I find that there is a fundamental problem with the classical argument in defense of certain derivatives.
Let’s start with CDS.
Megan McArdle at The Atlantic brings the issue...
March 2009
3 posts
4 tags
Resignation Letter from a Frustrated Employee of... →
Had I started this blog a week earlier, my first post would have commented on the carelessness of the press in their rush to pillory all employees of AIG-FP for the sins of the few responsible for the blunderous use of credit derivatives. Thankfully, Mr. DeSantis has done most of the work for me.
4 tags
A Rambling and Ambivalent Defense of Credit...
Lately, I often find myself in a position of explaining and defending CDS to my less derivatives-savvy friends and family, who are wont to heap blame for the financial crisis on the contracts themselves, the financiers who structure them, the companies that use them, and the regulators that (failed to) regulate them.
The debate usually begins in earnest when one of these friends, having read some...
3 tags
About this Blog
Hello.
I am Sandrew and this is my finance blog. Yes, Sandrew is an alias. I hate having to use an alias, but such is the state of my employment agreement that I feel the need to remain annonymous. That said, I feel I owe the reader at least a bit of a bio and an explanation as to why and how I am blogging about finance.
In my professional career, I am a presently financial derivatives...