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vendredi 7 octobre 2011

THE GREAT BANK ROBBERY , TWO. The beauty of antinomy : the Italian banker, proposing himself as prime minister,

NNT & Spietznagel describe neatly the state of the art.
Nothing new under the sun.
The sys is broken,not even oscillating: is just on-off, black or white. Polarized on the extremes.

NNT note arrives with no suspicious timing: sincethe times of  "Dynamic Hedging" Nassim has been a  positive  example for everyone : theoretically and culturally.Better:empirically.

We had a good point to start over with cleans minds and fair value markets.Was it  March 2008. Once more the chance has been missed just for we never learn we do not learn. We never learn that Omori Law , long and short term dependence do exist.In vernacular : a problem never arrives lonely. 

Let me remark the lines  below, excerpts from the article: it does apply to US bank's funds managers  as well as Europeans.

And let me remind the - colorful or desperate?-case of the famous Italian banker, gauche caviar exponent fired with 60 millions € kick,  now proposing repeatedly  himself as country prime minister. 

Good luck.

Waltz Lannes, 
10/02/2010, 15:30 

...."But the puzzle represents an even bigger elephant. Why does any investment manager buy the stocks of banks that pay out very large portions of their earnings to their employees?
The promise of replicating past returns cannot be the reason, given the inadequacy of those returns. In fact, filtering out stocks in accordance with payouts would have lowered the draw-downs on investment in the financial sector by well over half over the past 20 years, with no loss in returns.
Why do portfolio and pension-fund managers hope to receive impunity from their investors? Isn’t it obvious to investors that they are voluntarily transferring their clients’ funds to the pockets of bankers? Aren’t fund managers violating both fiduciary responsibilities and moral rules? Are they missing the only opportunity we have to discipline the banks and force them to compete for responsible risk-taking?
It is hard to understand why the market mechanism does not eliminate such questions. A well-functioning market would produce outcomes that favor banks with the right exposures, the right compensation schemes, the right risk-sharing, and therefore the right corporate governance.
One may wonder: If investment managers and their clients don’t receive high returns on bank stocks, as they would if they were profiting from bankers’ externalization of risk onto taxpayers, why do they hold them at all?  The answer is the so-called “beta”: banks represent a large share of the S&P 500, and managers need to be invested in them...."

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