Welcome to Bookmarker!

This is a personal project by @dellsystem. I built this to help me retain information from the books I'm reading.

Source code on GitHub (MIT license).

5

Primetime for Subprime

1
terms
2
notes

Currency crosses—Black boxes—Death of an expert (September 30, 2007)

Gessen, K. (2010). Primetime for Subprime. In Gessen, K. Diary of a Very Bad Year: Confessions of an Anonymous Hedge Fund Manager. Harper Perennial, pp. 5-6

(noun) the quality or state of being exiguous (very small in size or amount); scantiness

9

it would be impossible because I had no background, or I had a very exiguous background in finance

—p.9 missing author
confirm
5 years, 2 months ago

it would be impossible because I had no background, or I had a very exiguous background in finance

—p.9 missing author
confirm
5 years, 2 months ago
14

[...] we had a loss over the course of three days that was like a ten-sigma event, meaning, you know, it should never happen based on the statistical models that underlie it. Because the model doesn’t assume that everybody else is trading the same model as you are. So that’s sort of like a meta-model factor. The model doesn’t know that there are other black boxes out there.

think about this more. could you account for this? could you add a meta element to the model that accounts for the presences of other models (which may, themselves, have meta elements)?

—p.14 missing author 5 years, 2 months ago

[...] we had a loss over the course of three days that was like a ten-sigma event, meaning, you know, it should never happen based on the statistical models that underlie it. Because the model doesn’t assume that everybody else is trading the same model as you are. So that’s sort of like a meta-model factor. The model doesn’t know that there are other black boxes out there.

think about this more. could you account for this? could you add a meta element to the model that accounts for the presences of other models (which may, themselves, have meta elements)?

—p.14 missing author 5 years, 2 months ago
16

[...] What tends to happen in financial markets is, bad things happen when you really divorce the people who take the risk from the people who understand the risk. What happened is that that distance in the subprime market just increased and increased and increased. I mean, it started out that you had mortgage companies that would keep some of the stuff on their own books. Subprime lenders, it wasn’t a big business, it was a small business, and it was specialty lenders, and they made risky loans, and they would keep a lot of it on their books.

But then these guys were like, “You know, there are hedge fund buyers for pools that we put together,” and then the hedge fund buyers say, “You know what? We need to fund, we need to leverage this, so how can we leverage this? Oh, I have an idea, let’s create a CDO and issue paper against it to fund ourselves,” and then you get buyers of that paper. The buyers of that paper, they’re more ratings-sensitive than fundamentals-sensitive, so they’re quite divorced from the details. Then it got even more extended in the sense that vehicles were set up that had a mandate to kind of robotically buy that paper and fund themselves through issuing paper in the market.

this is eerily similar to how i've been thinking about the gig economy

—p.16 missing author 5 years, 2 months ago

[...] What tends to happen in financial markets is, bad things happen when you really divorce the people who take the risk from the people who understand the risk. What happened is that that distance in the subprime market just increased and increased and increased. I mean, it started out that you had mortgage companies that would keep some of the stuff on their own books. Subprime lenders, it wasn’t a big business, it was a small business, and it was specialty lenders, and they made risky loans, and they would keep a lot of it on their books.

But then these guys were like, “You know, there are hedge fund buyers for pools that we put together,” and then the hedge fund buyers say, “You know what? We need to fund, we need to leverage this, so how can we leverage this? Oh, I have an idea, let’s create a CDO and issue paper against it to fund ourselves,” and then you get buyers of that paper. The buyers of that paper, they’re more ratings-sensitive than fundamentals-sensitive, so they’re quite divorced from the details. Then it got even more extended in the sense that vehicles were set up that had a mandate to kind of robotically buy that paper and fund themselves through issuing paper in the market.

this is eerily similar to how i've been thinking about the gig economy

—p.16 missing author 5 years, 2 months ago