The Risks are Now So Huge that Market Psychology is the Key
This Would be a Rather Bad Time for a Skeleton to Fall out of a Banking Cupboard
We have previously argued that the world's financial system was becoming systemically unstable. As events unfold, many of these concerns are now being borne out. The risks are now so huge that government money on its own cannot necessarily resolve them by brute force - the real key is to manage, and even take advantage of, the psychology of the market. One of the key factors that will determine whether this is practically possible, is whether any of the banks have any gruesome skeletons that will 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, taken together with some of the methods used to try to manage risk could actually lead to a systemically unstable financial system. The author has previously termed what might conceivably now ensue for the first time, following the collapse of Lehman Brothers, as 'The Risk Soliton', so could it now happen ?
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 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 risk analysis. If poor decisions are made, we might lay the ground for a serious future conflict, or fatally undermine the mission of NATO, and with it our own security.
Would Anyone Like Some Free Energy ?
Heat Pumps - A Simple Technology - But No Strategic Thinking To Make Use Of It
While we have all been concentrating on the problems in the credit markets - perhaps the problems that we should really be worried about have been unfolding in the background in the energy markets. Addressing these issues requires long-term strategic thinking - here is one simple thing that might be done to help to adress the situation.
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.
One answer is to reward executives according to their 'risk-adjusted' performance. Some of these arguments reminded me of a risk management phenomenon known as the Trader's Option within the banks in the City.
Should Banks be Able to Use Mortgage Debt To Raise Finances From Government?
This morning's news highlighted some further developments in the current catalogue of economic woes.
The Irony of 'Moral Hazard'
An Issue of Tough Market Reality Rather Than Abstract Morality
Why 'Moral Hazard' is a more important issue than some people have realized.
The Problem With Using Credit Grades To Quantify Portfolio Credit Risk
We look at some of the issues around doing quantitative risk analysis based on credit grades.
We Don't Have Earthquakes In Britain
A Financial Lesson that we Should have Learn from Japan
In our opinion there are important lessons to be learnt from recent history in Japan.
A Risk Manager Called 'Cassandra'
Where were the risk managers?
Recent events appear to suggest that risk management in some financial institutions has left something to be desired - so where were the risk managers?
The Risk Implications of Complex Markets
Lessons From Lloyds of London And A Spider's Web
We consider whether an increasingly complex and inter-connected financial system is necessarily a safer one.
The Escalating Cost of Some Computer Systems
Perhaps Thomas Moore had a Point
When looking at the reported escalating costs of some computer systems, a quote from Thomas Moore comes to mind.
Important Subtleties in Modelling Risk-Appetite and Economic Capital
Why the Way that Banks Use Portfolio Credit Risk Models is Sometimes Naive
As the world's banking and financial systems start to become stressed - there is often a temptation to blame some of the risk models that are used by the banks. In the author's view these models often do have significant shortcomings, and we outline some of these here. However, these problems are often compounded by the way in which these tools are used and missunderstood.