Good morning
The headlines:
- Bruno Iksil was taking big risks long before loss. Link: Yes, I believe that’s how it works.
Apparently, B-dogg has been a “leviathan*” risk-taker since 2010, said “a person person with knowledge of the matter”.
Iksil’s VAR** was supposedly somewhere between $30 million and $40 million, and could “sometimes be as high as $60 million”, which is higher than that of the entire investment bank. I may be wrong – but this sounds like someone is surmising porky pies***. For the record, VAR is a function of risk AND portfolio size. Obviously, if he was managing huge amounts of money à la $100 billion, then a fairly large VAR is expected.
At the same time, it surprises me not-at-all that his VAR was occasionally higher than the investment bank’s. Because, um, diversification. Bruno was theoretically hedging risks – there was another side of the risk exposure somewhere else in the bank. The combination of the two is going to be less than the sum of the parts because the risks move in opposite directions.
And now, scandal, because JPM changed its VAR calculation method which made the VAR look like half of what it was under the old method. No comment here – but I don’t believe that the adjustment was intended to mislead. The VAR calculation is theoretical (and therefore, debatable) – I would have argued, if I were Bruno, that historical volatility is not so relevant if I affect market price. If I control it, then there is less risk!
Of course, I would have been wrong. But that would not have stopped me from believing it until proven otherwise.
- Woman versus Citigroup. Link: Woman wins.
Sherry Hunt is a hunter of businessmen. She worked for Citi in its mortgage division, trying to identify the good mortgages from the bad before Citi would buy them to repackage as mortgage-backed securities (I’ve written about this process here). So slight fail on that front. Except Sherry didn’t so much “fail” as “write about it in numerous reports to her supervisors”. Reports which were subsequently, well, buried.
Then she got asked to lie or something. I think there was “an ass on the line****”. She refused, took Citi to court, and then took Citi to court again – this time, with the US Department of Justice. This is the technical definition of “whistle-blowing”. Citi settled for $158 million. Sherry got $31 million of that. What a pleasure.
Look for Julia Roberts in a soon-to-be-forthcoming Erin Brockovitch II: The Hunt.
- Draghi criticises the Merkel stance. Link: The Great Europe Freeze-out.
Mario (and other Mario*****) want Angela to back down on the opposition to euro-aid to struggling banks. It’s all about limiting contagion and not-helping the banks is the economic equivalent of not-limiting the contagion.
- Ireland is expected to vote in favour of the EU Fiscal Treaty. Link: Well, as long as the Irish are on board.
The EU fiscal treaty only needs approval from 12 of the 17 members – most of whom don’t have to go to the masses to commit to it. But I think everyone would rather have more support than less. And the Irish are offering theirs.
Apparently, Ireland is a poster-child for successful austerity. I think that Estonia is a better-behaved. But maybe that’s just me.
- China’s Dating Expo. Link: This is NOT a game, I repeat.
Read this article.
Nothing turns one on like “1.67 meter female working in a research field, born in 1983, looking for 1.77 meter male born after 1977”. Because 10 cm is the perfect height differential – she’s researched it.
But it does address a key issue – which is China’s falling birth rate. Trouble is: economic growth really can be a function of the size of the labour force. And when your labour force ain’t reproducing, there’s going to be a skills shortage in about 20 years time. It may be a distant problem, but I’m afraid that the only solution is a long-term one.
Hence, in a couple of decade’s time, enter: Africa. Boom.
That’s all for now.
Have a good day.
*Ah leviathans, those mythical beasts. Has anyone considered that we have never seen a photo of this guy? A finance urban legend! Or possibly, we’re just running out of ways to use “whale” as an adjective…
**VAR is Value-at-Risk: a statistical projection of how much money a particular instrument/portfolio/division/firm could lose when the market goes against it. Generally, it is calculated based on the instrument/portfolio/division/firm value, the historical movements of the market (or volatility), and probabilities based on the normal distribution.
***The math: if Bruno was involved in the $100 billion strategy as claimed, then a VAR of $60 million is, like, 0.06% of the portfolio at risk. Which, frankly, doesn’t sound that abnormal. If anything, it sounds a bit low.
****Folksy. She’s from rural Michigan.
*****Mario Monti (Italian Prime Minister) and Mario Draghi (ECB president). I know I know – the asterisks are getting out of control.
