Re: [tlug] A Crowdfunding Crash

[Curt Sampson <cjs@example.com>]

On 2013-08-01 17:29 +0900 (Thu), Stephen J. Turnbull wrote:

> It would be reasonably simple to solve, too; simply require the
> investment banks to disclose how much and which part of these fancy
> derivatives they're holding themselves. (Lehmann went down because
> they sold off the attractive parts of the debt, and kept the risky
> parts for themselves.)

You may well be more expert than me on this, I don't know. But that
doesn't sound at all simple to me given that someone's got to be doing
valuations and risk analysis on the instruments, and on such complex
ones there's always room for plenty of disagreement there before the
darn things mature and we see how things worked out.

Typically you try to use markets to take care of this problem, but that
has its own problems in dealing with players of vastly disparate sizes.
Michael Lewis, in _The Big Short_, tells the story of some smart players
who took on the bet against the big banks on their CDOs. However, being
small players in an over-the-counter contract with big banks, they had
the banks' valuations (rather than their own, or something in between)
forced on them and, being small, they of course couldn't muster up the
margin to maintain their position based on what they considered an
utterly stupid valuation anyway, so the market simply couldn't work.

It's an utterly fascinating story, and I'd love to get your opinion on
it sometime.

cjs
-- 
Curt Sampson         <cjs@example.com>         +81 90 7737 2974

To iterate is human, to recurse divine.
    - L Peter Deutsch