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Mon Oct 13

• ::Lacima Group::Welcome page
• Stop Pretending you can Start a Company while Avoiding Sacrifice and Risk
• Just give them grit | Rachel Johnson - Times Online
• Edge: THE FOURTH QUADRANT: A MAP OF THE LIMITS OF STATISTICS By Nassim Nicholas Taleb

Sun Oct 12

• Credit Risk Management for Banking | SAS
• U.S. Missteps Are Evident, but Europe Is Implicated - NYTimes.com
• naked capitalism: DTCC Claims Lehman Credit Default Swap Worries Overblown, Net Payments Only $6 Billion: Reader Tim sent us a link to a press release from The Depository Trust and Clearing Corporation which says that the net payout on Lehman credit default swaps will be comparatively minor, a mere $6 billion, versus the gross exposure, which has been widely reported as in excess of $400 billion. If this proves correct, that will be the best news we have heard for some time, since one of the unknowns hanging over the market has been the prospect of further bank failures resulting from Lehman payouts. DTCC's report, if accurate, is consistent with the industry' s claim that protection writers hedged their exposures, and in this market, the only effective way to do so was by entering into an offsetting swap).
• Interfluidity :: Crocodile tears and the LIBOR-OIS spread: But the new conventional wisdom has it that stock markets aren't really where the action is. To gauge how the crisis is unfolding, we are told, we should pay attention to credit indicators, particularly indicators that compare the cost of interbank lending to the cost of "risk-fre e" government borrowing, such as the TED spread. Felix Salmon has done a nice job of pointing out the flaw in these indicators: Banks don't actually have to borrow at the elevated interbank rates, as long as central banks are willing to lend directly at much lower rates. So, it's unclear whether interbank borrowing rates like LIBOR are meaningful as measures of interbank counterparty risk. As Felix notes:
• naked capitalism: Soros: "How to capitalise the banks and save finance": but one would also hope that regulators would apply pro-cyclical capital rules in good times (ie, requiring banks to hold higher equity levels when the economy is robust. There have been proposals advanced for how that would work operationally that appear sound).
• Greg Mankiw's Blog: Plan B: Thanks to two brilliant economists, Chip Case and Robert Shiller, we have reliable measures of house price changes at the zip code level. Thus, by using this real estate index, the re-contracting option will reduce the face value of the mortgage (and the corresponding interest payments) by the same percentage by which house prices have declined since the homeowner bought (or refinanced) his property.... In exchange, however, the mortgage holder will receive some of the equity value of the house at the time it is sold. Until then, the homeowners will behave as if they own 100% of it. It is only at the time of sale that 50% of the difference between the selling price and the new value of the mortgage will be paid back to the mortgage holder....

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