Monday, November 21, 2011

Models Behaving Badly Led to MF’s Global Collapse – People Too: Emanuel Derman

An over reliance on short-term financing is at the root of the problems according to Emmanuel Derman but he cautions it is not exactly a repeat of Long Term Capital Management.

My favorite line is that we should use models to predict what we should pay for an asset (i.e. intrinsic value) not for predicting what the market should be.  He is also very good talking about what Goldman's risk management was like when he was there (not just checking a box for regulatory reasons).

A look-in: from Yahoo's Daily Ticker
"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."

No comments: