When is poor hedge fund performance contagious?

I uploaded a new paper with Nicole Boyson and Christof Stahel titled “Hedge fund contagion and liquidity”. In this paper, we investigate when different hedge fund styles perform poorly at the same time and whether poor performance across hedge fund styles is accompanied by poor performance in the broad markets. Our empirical work uses returns […]

Good Banks, Bad Banks; WFC and WB?

Today’s heresy – which I find particularly annoying because it is so lazy intellectually – is claiming that volatility equals risk. What rubbish! Risk is when a company goes belly-up, a currency goes against you, or a country turns sour, such as Cuba; that is, the possibility of permanent loss of capital – which has […]

A Baltic Travelogue of Little Importance

We travel not to change the world, but to change ourselves. I have learned a great deal in my Baltic travels of the past ten days, and it has changed me in small ways. As I haven’t had time to do much more than sleep in a warm, soft bed that doesn’t move since I […]

End of the Line for Investment Banks?

When the investment banking industry heaps praise on the Federal Reserve for  creativity and statesmanship in stretching its traditional mandates in the recent financial market turbulence, it’s time for ordinary people to fasten their seat belts and hang on to their wallets. The Fed-brokered acquisition by JP Morgan Chase of Bear Stearns and its assumption […]

Margins vs. Stability

The overall problem of today’s markets is one of conflicting incentives: custom products yield fat margins for investment banks while presenting the capability for widespread systemic risk. Hence, if innovators get lazy they sow the seeds of their own demise. But regulators are not recognizing the shortcomings, either. The Federal Reserve Bank of New York […]

“Is Income Volatility Really Rising?”

I’ve presented quite a bit of Jacob Hacker’s work here, so it’s only fair that I also present intelligent responses to it. Justin Wolfers has the details, and I added a few comments at the end: Is Income Volatility Really Rising? For Whom?, by Justin Wolfers: Jacob Hacker’s Great Risk Shift described rising income risk […]

Are Corporate Balance Sheets In Good Shape?

There have been large changes in the way in which corporate balance sheets and profit and loss accounts are complied. Whereas 20 or 30 years ago, profits or losses generally reflected the difference between the original book cost of an item and the proceeds from its sale, today asset prices are designed to represent their […]

The Greenspan Gamble

The most notable thing about Treasury Secretary Hank Paulson’s proposed plan for restructuring financial regulation is the expansion of the Federal Reserve into a sort of “Super Fed.” This new Fed would have oversight of all financial markets and firms, including investment banks. It would be responsible for financial market stability and would be expected […]

Rosy Scenario and Her Ardent Suitors

Everyone wants to dance with Rosy Scenario – just ask Chuck Prince, ex-CEO of Citigroup. All the other potential scenarios look drab, unpleasant or even scary when compared to Rosy. Whether dressing balance sheets or risk management models, everyone dresses for Rosy. Rating agencies and monoline insurers chase Rosy too, profiting from her dependence on […]

The most dangerous form of Peak Oil

Summary: Robert Hirsch describes another form of Peak Oil: political peaking. Perhaps the Middle Eastern nations can produce more oil to meet the world’s growing thirst — but will they? Is it in their interest to do so? Also, the focus of doomsters on shockwaves — instantaneous and large production cuts — ignores the more […]