SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Strategies & Market Trends : The Final Frontier - Online Remote Trading
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
From: TFF11/21/2011 5:05:32 PM
   of 12617
 
Models Behaving Badly Led to MF’s Global Collapse – People Too: Emanuel Derman

"The entire system has been utterly destroyed by the MF Global collapse," Ann Barnhardt, founder and CEO of Barnhardt Capital Management, declared last week in a letter to clients.

Whether that's hyperbole or not is a matter of opinion, but MF Global's collapse — and the inability of investigators to find about $1.2 billion in "missing" customer funds, which is twice the amount previously thought — has only further undermined confidence among investors and market participants alike.

Emanuel Derman, a professor at Columbia University and former Goldman Sachs managing director, says MF Global was undone by an over-reliance on short-term funding, which dried up as revelations of its leveraged bets on European sovereign debt came to light.

In the accompanying video, Derman says MF Global was much more like Long Term Capital Management than Goldman Sachs, where he worked on the risk committee for then-CEO John Corzine.

A widely respected expert on risk management, Derman is the author of a new book Models. Behaving. Badly: Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life.

As discussed in the accompanying video, Derman says the "idolatry" of financial models puts Wall Street firms — if not the entire banking system — at risk of catastrophe. MFGlobal was an extreme example of what can happen when the models — and the people who run them -- behave badly, but if Barnhardt is even a little bit right, expect more casualties to emerge.

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com

finance.yahoo.com
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2025 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News