Category: Economics

Revisiting the Lehman Brothers Bailout That Never Was

Inside the Federal Reserve Bank of New York, time was running out to answer a question that would change Wall Street forever.

At issue that September, six years ago, was whether the Fed could save a major investment bank whose failure might threaten the entire economy.

The firm was Lehman Brothers. And the answer for some inside the Fed was yes, the government could bail out Lehman, according to new accounts by Fed officials who were there at the time.

***

Those teams had provisionally concluded that Lehman might, in fact, be a candidate for rescue, but members of those teams said they never briefed Mr. Geithner, who said he did not know of the results.

→ The New York Times

Do We Need To Fire PIMCO ?

Update : Now Felix Salmon thinks PIMCO should exit the mutual fund business altogether.

Virtually no large pool of assets in this industry is completely Pimco-free, whether we’re talking about Total Return or any of their other funds and SMAs. The issue cannot be ignored because the end-customers of these investors will have read plenty on the topic this weekend and will have questions and concerns of their own. No amount of reassurance from Pimco can change this fact right now.

This is the question that will lead off almost every investment committee meeting on earth tomorrow.

→ The Reformed Broker

Ello, goodbye.

Aral is leaving Ello :

When you take venture capital, it is not a matter of if you’re going to sell your users, you already have. It’s called an exit plan. And no investor will give you venture capital without one. In the myopic and upside-down world of venture capital, exits precede the building of the actual thing itself. It would be a comedy if the repercussions of this toxic system were not so tragic.

Personally, I don’t really mind VCs selling my datas to advertisers and brands. That’s the price I’m willing to pay for a good service.

The other way to build a social service like this would be to set a subscription, like App.net does, though it has not proven to be very popular.

Now, how to maintain a service without funding ?

This is mythical. I think Aral’s note falls short without explaining his ideal way to fund a company and feed its employees.

Venture Capital might not be the perfect match between privacy and social medias, but I think it sustains creativity and encourage entrepreneurs to take risk — sometimes in creating some pixel-perfect layouts.

→ Aral Balkan

Reality = Normal + Fat-Tail Distributions

To illustrate the phenomenon, consider the S&P’s daily percentage returns in terms of quantiles, which divides the performance record into equal-sized portions. The graph below plots the sample return of the S&P (black circles) against the theoretical quantiles (red line), defined here by a random distribution. If the S&P’s daily returns were perfectly random, the black circles would match the red line.

sp.a.25sep2014

Normal distributions are still useful for analyzing markets and designing portfolios. Indeed, even in the daily return plot above it’s clear that the distribution looks quite normal for a fair amount of the sample. We can’t rely on normality alone for modeling markets. Factoring in fat-tails risk is essential. But letting a fat-tail worldview dominate your analysis is every bit as flawed as assuming that normal distributions will prevail. Asset pricing doesn’t neatly fit into one theoretical box, which means that our analytical tool kit shouldn’t be in a conceptual straightjacket either.

→ The Capital Spectator

Bill Gross: The Bond King’s Move to a New Throne

From Bloomberg’s Market Makers :

Celebrity sells. And it can sell mutual funds as well as it sells sneakers. Bill Gross helped build Pacific Investment Management Co. into a $1.97-trillion firm by becoming a star. He cultivated his fame with a busy media schedule and colorful commentary on everything from Paris Hilton to the U.S. economy’s “new normal.”

→ Bloomberg