Earlier this week, the UK government submitted draft legislation on its Electricity Market Reform (EMR). In a series of blog posts from last July, I critiqued the central premise underlying this insurance proposal. The touted benefits overlook the cost of risk passed along to UK taxpayers or ratepayers. They are based on a fanciful imagination [...]
In a previous blog post, I criticized a study by the economics consulting firm NERA purporting to measure the costs companies would face as the Dodd-Frank reform of the OTC derivative markets is implemented. NERA is working on behalf of a group of energy companies lobbying to avoid some of the law’s mandates. Last week, [...]
February 17, 2012 – 8:25 am
As part of the fallout from last August’s bankruptcy of the Federally-backed solar firm Solyndra, the Obama Administration appointed Herbert Allison, a Republican banker and former Treasury official to review the Department of Energy’s loan guarantee program. His report was completed at the end of January and released earlier this week. It contains many useful [...]
January 22, 2012 – 10:34 pm
The CFTC is working to finalize the rule defining swap dealers and major swap participants. Under the Dodd-Frank financial reform, the rules governing operation of the OTC derivative market operate in large part through codes of conduct imposed on these entities. As reported most recently by Silla Brush at Bloomberg, a number of companies are [...]
December 6, 2011 – 12:58 pm
Much has been said about MF Global, the US brokerage and clearing group that filed for bankruptcy in late October. In March 2010, when Jon Corzine was brought in as the CEO, MF Global’s franchise in brokerage and clearing operations was strong, but had tallied a string of losses. Corzine was tasked with cutting expenses [...]
October 3, 2011 – 4:45 am
Aswath Damodaran, at NYU, has a nice post on the right and wrong ways to implement valuations in the light of the historically low interest rates on Treasuries and other sovereign debt. The trick is to think through the consequences on all elements of the valuation.
September 29, 2011 – 4:22 am
The August bankruptcy at the solar panel manufacturer Solyndra has generated a predictable political kerfluffle, since the company had received $527 million in loan guarantees from the Obama Administration. The political issues raised by the case are fair game. But I’m more interested in a more general issue: What is the true cost to taxpayers [...]
September 5, 2011 – 11:01 pm
We began this series of posts recapping the finding that a currency carry trade investment has historically produced high return relative to the low risk. This finding is not consistent with models in finance that focus on the correlation between an investment’s return and the return on some benchmark stock portfolio. Using these models, and [...]
August 29, 2011 – 11:01 pm
In our previous post in this series, we highlighted a line of research by Burnside et al. that explains the profitability of the carry trade as a “peso” problem. That is, the historical data doesn’t completely reflect all of the bad outcomes that may arise. The as yet unobserved bad outcomes are known as “peso [...]
August 28, 2011 – 11:01 pm
In a previous post, we reported on the evidence that the carry trade strategy – investing in currencies with high interest rates and borrowing in currencies with low interest rates – earns high returns with low risk. In this post we describe in more detail some of what is known about the risk and return [...]
