tag:blogger.com,1999:blog-8702840202604739302.post4661745257873673218..comments2024-03-28T03:38:53.734-07:00Comments on MacroMania: What went wrong at MF GlobalDavid Andolfattohttp://www.blogger.com/profile/12138572028306561024noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-8702840202604739302.post-32181019537410461072011-12-16T19:47:52.083-08:002011-12-16T19:47:52.083-08:00Ben, Yep, you've had the benefit of listening ...Ben, Yep, you've had the benefit of listening to me describe the argument in some detail. I'm not entirely sure that it applies in this case, but it's always interesting to speculate "what if?"David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-72363426379131209822011-12-16T14:17:54.542-08:002011-12-16T14:17:54.542-08:00As I was reading this post I recalled the model yo...As I was reading this post I recalled the model you are talking about David (you taught it in a class). Essentially if people were unaware of the current value of MF's assets (if MF were not forced to disclose the information or perhaps just less frequently) investors may not have asked for their money back/more collateral to rollover debt/higher yields. This would have given more time for MF's bet to play out. Of course things could have gone even worse, but I can imagine a situation in which a little less information could have helped.<br /> Always like your take on things and the way in which you make your arguments.<br /><br /> As for your point, Anon; it seems to me that no one did particularly well in this case (and if it's a pareto improvement, they are all better off -- weakly at least)Bennoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-83624438915562979392011-11-08T07:11:09.679-08:002011-11-08T07:11:09.679-08:00Anon, You are right to point out that interests ma...Anon, You are right to point out that interests may diverge here. But I meant optimal in the sense of Pareto, with a social welfare function consisting of an equally weighted sum of individual utilities.David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-23135945224021416292011-11-07T14:07:56.376-08:002011-11-07T14:07:56.376-08:00How do you define "optimal", here? Seem...How do you define "optimal", here? Seems it might differ for the shareholders / counterparties / employees etc.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-80969598883259190452011-11-03T07:51:35.250-07:002011-11-03T07:51:35.250-07:00Let me explain why I think the phenomenon is poten...Let me explain why I think the phenomenon is potentially interesting.<br /><br />I am studying a class of models which suggest that full and immediate disclosure of asset information on the balance sheet of an intermediary may not always be a good idea. Some nondisclosure may be optimal (with good behavior enforced by the desire to maintain the company's franchise value).<br /><br />Now enter the regulators/bond raters who force disclosure and downgrade to junk. Is this really in the social interest? Maybe yes, maybe no. I'm not sure. But I think it is worthwhile to think about. It is potentially a very big deal.David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-67210277352908551132011-11-02T23:47:18.369-07:002011-11-02T23:47:18.369-07:00David
I'd don't quite see the big deal. A...David<br /><br />I'd don't quite see the big deal. A broker dealer failed.<br /><br />Big deal.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-2387941975502359472011-11-02T18:58:04.687-07:002011-11-02T18:58:04.687-07:00Anon:
1. Do you mean among the primary dealers?
...Anon:<br /><br />1. Do you mean among the primary dealers? <br />2. Could you elaborate on this point?<br />3. Maybe. Not sure how much is "too much" risk though. They made a bet. They lost. That happens even with bets that have "just the right amount" of risk.David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-62089199146065071362011-11-02T12:32:01.853-07:002011-11-02T12:32:01.853-07:00David,
It should also raise awareness and concern....David,<br />It should also raise awareness and concern.<br />1. Who else is doing something similar? This is something that should have been expected with ZIRP. Reach through a combination of leverage and credit for more return.<br />2. It also highlights potential links through the system via the collateralized repo market.<br />3. It should cause the Fed, or at least some members, to question the efficacy of QE policies that cause these types of reactions, i.e., taking too much risk.<br /><br />This is the law of unintended consequences at work.<br /><br />JCAnonymousnoreply@blogger.com