How do these modern day risk models account for a run on a broker? how do they predict a rapid decline in perpection of assets? What we have seen is a stealth nationalization of the US banking system, the system cannot operate purely as a free-market, its more like a naughty child being looked after by a worrying mum, if the fed didn't step in on friday to bail BSC, the whole system could have buckled within hours, if hundred's of billions of 3rd party issue's became un-redeemable it would of had a massive domino effect on everyone. How many times is the Fed pre-pared to use the ole bailout trick before it becomes too much? What needs to change to minimise systematic liquidity risks going forward?
No risk taking no reward. Whats the point of having any risk management system then? Problem is when the banking system goes nuts everyone pays the price. Am I the only one who thinks this whole thing is a Potemkin village and the US government still is in complete denial and thinks that the model of growth for the last twenty years is going to reappear?
Well, there's "risk", and then their's "stupid risk". Stocks have a margin of 50% instead of 5% [or even 0%] for a reason. Even the "model of growth for the last 20 years" is mostly illusion... built on Gummint deficits, consumer debt, and money-pump inflation. Potemkin Village... I likey!
I don't think its that risk was under-estimated, it was that the payoff was THAT good. Ie if i worked at BSC for 5 years and make $50 million, then the firm blows up it was worth it. Ppl act like its totally unexpected but anyone who went out and tried to buy a house saw how ludicrious prices had become (a symptom of the problem). No one is going to give the money back from the gravy train days. In the end, it was worth it, a free call option. Leverage up, and when it works you make obscene money. When it goes wrong, you get out and let the government pick up the tab. Socialized capitalism, privatized profits during the good years, socialized losses during the bad. (ie the strategies didn't change during the good years, they just were working then). Lever Lever Lever... rinse and repeat.
So... you're saying, "so long as you get away with it, it was worth it"? Was it "worth it" to the victims? Will it have been "worth it" to the American public when the debt implosion, inflation, and currency destruction hits the fan? I think your comment was among the most LAME I've ever read on ET... and THAT'S saying something...