Re: [tlug] A Crowdfunding Crash

["Stephen J. Turnbull" <stephen@example.com>]

Curt Sampson writes:
 > 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,

Sure.  But if the designer has to say which parts of the instrument
they're holding, you can see their value at risk.  For Lehmann Bros,
that was greater than their whole value *and* it was very risky.  If
that were made public, anybody they owed money to would get out in a
hurry.

 > 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.

But that's not a problem, except for the little guys.  The little guys
get screwed, it's true (I *assure* you it's true because some of my
colleagues make a bit on the side by constructing ways to screw little
guys).  But that's not a systemic problem.  The systemic problem is
that the big fairly smart money (and some universities whose financial
advisors were not gay guys named "Maynard") took big chunks of the
high return low risk stuff, and all that came tumbling down when
Lehmann fell apart.  If they had known how much Lehmann was holding
... but nobody was telling.

So they told their bosses "this is what we're holding and it's safe
because we have a contract", and the sales guys at Lehmann told their
bosses "look how much we're selling and our quants assure us we make
money on average and we're big enough to play the law of averages".

 > Michael Lewis, in _The Big Short_,

Is that the same guy who wrote _The New New Thing_?  A bit breathless
for my taste.  Tracy Kidder (_The Soul of a New Machine_) was more to
my liking.  I should take a look at this one, though.

Steve