Archive for December 27th, 2007

A must read case study for all finance students

December 27, 2007

I had posted about an article by Dean Foster a while ago where he talks about regulating hedge funds.  On seeing his website I came across this gem of a paper which is actually an experiment all finance students should undergo.

It is titled “Being Warren Buffet” and is based on the dice game most students take in a finance course. The paper explains the importance of variance while looking at returns (which is often forgotten by most).

I can go on and explain the paper but that would take huge time. It is better if people simply download the paper and read it.


Why double standards regarding sovereign wealth funds?

December 27, 2007

The sub-prime crisis is actually an eye-opener for not just the way it has frozen economies but also on the policies. The questions are being asked on monetary policy, fiscal policy etc.

The developed world has always chided the developing for their lax policies and this sub-prime crisis actually points to their lax policies. In the name of financial innovation, unpronounceable, nonviable mortgages were sold (mainly to get higher bonuses) and it all came to an end (still more bonuses are being given than last year). 

I just want to point out to another double standard , that of capital infusion by sovereign wealth funds (Middle east, Chinese, Singapore etc). I don’t know why isn’t anyone actually criticising their policies. Most articles actually point to the growing power of SWFs. Well, we don’t have a choice do we?

Not long back (read in good times) they criticised the SWFs, Chinese (their financial sector is not developed, currency is overvalued etc). When times are bad they have opened up to the Chinese and the other middle east money blatantly.

What is bad is bad, you can’t change your stance because you are in trouble. If all this capital infusion was happening behind curtains it was fine, but all is known to the public.

Why can’t they refuse and instead take losses on their books? Where is the corporate governance?  Why the double standards?

Update : Rodrik points to this interesting related article

Assorted Links

December 27, 2007

1. WSJ Blog says inflation concerns rising.

2. WSJ Blog points FT person of the year was Jean Claude Trichet.

3. Houseprices continue to fall. Mankiw shows an excellent graph on the same. When will this happen in Mumbai?

4. Mankiw points to a behavioral finance solution to the sub-prime crisis.

5. Rodrik deconstructed by the media.

6. I pointed to a new asset class y’day – the lawsuits (see here). Fin Rounds points to another – divorce settlement financing!

7. JRV on importance of short selling

8. TTR comments on recent pumping of capital by Chinese in Foreign Banks.

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