Re: Quants vs Congress
---------- | From: Timothy C. May <netmail!tcmay@netcom.com> | To: John E. Kreznar <jkreznar@ininx.com> | Cc: <cypherpunks@toad.com> | Subject: Re: Quants vs Congress | Date: Wednesday, April 13, 1994 8:13PM | | Received: from relay2.UU.NET by netmail.microsoft.com with SMTP (5.65/25-eef) | id AA14155; Wed, 13 Apr 94 19:20:40 -0700 | Received: from toad.com by relay2.UU.NET with SMTP | (5.61/UUNET-internet-primary) id AAwlnp10043; Wed, 13 Apr 94 23:21:22 -0400 | Received: by toad.com id AA17257; Wed, 13 Apr 94 20:13:54 PDT | Received: from mail.netcom.com (netcom5.netcom.com) by | toad.com id AA17248; Wed, 13 Apr 94 20:13:47 PDT | Received: from localhost by mail.netcom.com (8.6.4/SMI-4.1/Netcom) | id UAA15518; Wed, 13 Apr 1994 20:13:38 -0700 | Message-Id: <199404140313.UAA15518@mail.netcom.com> | In-Reply-To: <9404140219.AA09878@ininx> from "John E. Kreznar" | at Apr 13, 94 07:19:36 pm | X-Mailer: ELM [version 2.4 PL23] | Mime-Version: 1.0 | Content-Type: text/plain; charset=US-ASCII | Content-Transfer-Encoding: 7bit | Content-Length: 1913 | Sender: netmail!owner-cypherpunks@toad.com | Precedence: bulk | | John Krexnar writes: | | (Duncan Frissell's section elided) | | > Aw c'mon Duncan. Derivative of what? What's a quant? Where was the | > term ``intermediation of political risk'' used? | > | > I love your postings when I can make sense of them. This one is so well | > encrypted I can't. | | "Derivatives" mean secondary financial instruments, based on ("derived | from") things like stocks, bonds, and real estate. Things like futures | markets, "baskets" of other instruments, etc. These started, it may be | argued, in the trading pits of Chicago, but have now spread around the | world. I think I recall reading (in "Time"'s cover story last week on | derivatives and quants, ironically enough--the Wall Street nerd with | the "messy room" has replaced the hacker as the Number One Threat to | Civilization) that $ 4 Trillion in derivatives trades _daily_. | | "Quants," closely related to "rocket scientists," are those who use | math and statistics for investment purposes. Short for "quantitative." | | I urge all Cypherpunks who can afford to do so to subscribe to "The | Economist." It's filled with good, incisive articles, including the | best treatments of breaking science and technology stories in any | general magazine. Shoot your t.v., maybe, but don't let your | subsription lapse. Available also on newstands, whence information on | subscribing may be found (read the mag long enough, and you too will | speak in terms of "whence"). | | --Tim May | | | -- | .......................................................................... | Timothy C. May | Crypto Anarchy: encryption, digital money, | tcmay@netcom.com | anonymous networks, digital pseudonyms, zero | 408-688-5409 | knowledge, reputations, information markets, | W.A.S.T.E.: Aptos, CA | black markets, collapse of governments. | Higher Power: 2^859433 | Public Key: PGP and MailSafe available. | "National borders are just speed bumps on the information superhighway." | The derivatives market is a very dangerous place also. In yesterdays financial section here in Seattle there was an article about how Proctor and Gamble is reporting a loss of over $100 million in the mortgage derivative market. Also in RISKS Digest 15.75 there is an article with the subject ' God Grants Granite Gift to RISKS Punsters' that talks about a company losing $600 million over the period of several weeks in the deriviative market. Mike. -=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= Mike Markley || The opinions here do not represent the mmarkley@microsoft.com || opinions of my employer. Attempts to || associate the two are pointless. "I want to look at life, In the available light" - Neil Peart -
Mike Markley says:
The derivatives market is a very dangerous place also. In yesterdays financial section here in Seattle there was an article about how Proctor and Gamble is reporting a loss of over $100 million in the mortgage derivative market.
Actually, there isn't much of a mortgages derivatives market -- unless you think of CMOs as derivatives. The P&G loss was reportedly in some interest rate swaps, although I haven't read too much about it. Derivatives are no more dangerous than any other instrument. Its just that because they are often highly leveraged you can make or lose far more money as a percentage of your investment. However, there is no requirement that you leverage yourself that much -- people just choose to do so.
Also in RISKS Digest 15.75 there is an article with the subject ' God Grants Granite Gift to RISKS Punsters' that talks about a company losing $600 million over the period of several weeks in the deriviative market.
I believe you are mentioning Askin Capital Management. They were trading CMOs, which are basically just packages of mortgages that have had some fancy footwork performed on them to allow investors to manage the prepayment risks. Their problems were due to illiquidity in their market, which tended to be for unusual or "junky" traunches of CMOs. Based on what I've been able to read, they were using an arbitrage strategy between mortgage securities that should have fallen in price with interest rate fluctuations and those that should rise -- by having a balanced book they should theoretically have been free of interest rate risk, but because they were highly leveraged losses in their portfolio could cause margin calls. Normally they could just have unwound their matched positions in such a situation, but when the market turned illiquid they got margin calls without being able to meet them and because they were highly leveraged they swiftly lost most of their capital. However, I'll note again they were not trading derivatives per se -- just repackaged and securitised mortgages. I'll point out that this is not the FinancialPunks list but the cypherpunks list -- I'll discontinue the discussion here. Perry
participants (2)
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Mike Markley -
Perry E. Metzger