'Double or Quits' Has Never Been an Advisable Trading Strategy
Why long-term issues need to be addressed to resolve short-term problems
The UK government has announced a second wave of support for the banking sector. In our view this is a path which should only be followed if there is a clear accompanying intent to resolve some of the underlying structural issues in the financial system.
Calls for 'Increased Regulation' are a common 'knee-jerk' response to financial failures; but this is not a panacea, and does not necessarily get to the real root of the problem.
In our view, two of the many measures that should be pursued are (i) A restructuring and simplification of the financial system, and (ii) Holding non executive directors more directly personally accountable for their actions, and, perhaps more importantly, their inactions.
Has The Bail-Out of the UK Banks Worked ?
A quote often attributed to Keynes should now be taken seriously
Following last month's bail-out of the UK banking system, things are not looking good - and some commentators are already saying that these measures have failed. A few have even claimed that current events herald the end of the capitalist system.
The truth is that it is too early to say, but we should not set our expectations too high.
A quote attributed to John Maynard Keynes seems especially relevant, but the death of capitalism has been somewhat exhaggerated.
The Risks are Now So Severe that Market Psychology is the Key
This would be a rather bad time for a skeleton to fall out of a banking cupboard
The risks in the financial markets are now so large that government money on its own cannot necessarily resolve them by brute force alone - the key is to manage, and even take advantage of, the psychology of the market.
In order to achieve this, we would need to be confident that the banks do not have any gruesome skeletons that could fall out of a cupboard at a particularly inconvenient moment.
Could the Fall of Lehman Brothers Unleash 'The Risk Soliton'
Why the complexity and interconnectedness of financial markets could lead to a catastrophe
The author has previously argued that the complexity of modern financial markets, together with the methods used to try to manage risk, could have created a systemically unstable structure; partly through a tangled web of complex credit derivatives.
A 'Soliton' is a non-linear wave, quite unlike the more benign waves that we are used to in every day life.
For technical reasons, the author has previously termed what might conceivably now be triggered in the financial markets, following the collapse of Lehman Brothers, as 'The Risk Soliton' - so could it now be unleashed ?
Afternote: In response to this, Prof. James Galbraith commented: “The metaphor is excellent.”
Georgia - Should this be a Wake-Up Call for Some Proper Strategic Risk Analysis ?
Why we shouldn't forget what NATO is really about.
The conflict currently underway in Georgia should act as a wake-up call to remind us what NATO is really about. As current events unfold we should do a sober strategic risk analysis.
If poor decisions are made now, the ground could be set for a serious future conflict, or fatally undermine the mission of NATO, and with it our own security.
RCRT GAVONTS has been Listed by the US DoD's DACS
DACS is the US DoD's authoritative source for state-of-the-art software.
Would Anyone Like Some Free Energy ?
Heat pumps - A simple technology - but no strategic thinking to take advantage of it
While we have all been concentrating on the problems in the financial markets - some other problems that we should be worried about in the energy markets have been unfolding in the background.
Addressing these issues requires long-term strategic thinking - now would be a good time to start putting in place some solutions. If the government resorts to a public spending economic stimulus package, then there are some energy-related technologies that should definately be progressed.
Exercising the 'Traders Option'
The problem of risk-asymmetry and risk vs. reward in the world of finance.
As current events in the financial markets unfold, there has been some criticism of the levels of remuneration paid to senior bankers and other financiers. There is a common perception of a significant imbalance between risk and reward.
Some of these arguments reminded me of a phenomenon known as the 'Trader's Option' within the banks in the City, which has often been a key factor behind the well-publicised cases of Rogue-Traders.
One answer is to reward executives according to their 'Risk-Adjusted' performance, unsuprisingly executives often tend to resist being 'risk-adjusted'. However it is worth bearing in mind that whilst 'Rogue Traders' can do quite a lot of damage, 'Rogue Senior Executives' can do considerably more !
Should Banks be Able to Use Mortgage Debt To Raise Finances From Government?
Today's morning news highlighted some further developments in the current catalogue of economic woes: Firstly, a meeting with 'the banks' at No 10. Secondly the reporting of a 'widespread' fall in house prices.
To quote 'Private Eye': are they by any chance related ?
If the government decides to provide financing to the banks in return for, or collateralised by, mortgage debt, then - under the circumstances - it should consider the appropriate pricing of risk very carefully.