Business Insider, Presenting: The 101 Best Finance People To Follow on Twitter, here. Not so many FinQuants on the list. Nick Firoozye makes it for Nomura Fixed Income Strategy/Macro. Salmon, DeLong, and Zerohedge are buried in there.
Slashdot, Ellison Doesn’t Know If Java Is Free, here. Well … is anything really Free, when you think about it? Must have sucked to be Ellison, for like 5 seconds.
EETimes, Intel says 25% of shipments will be on 22-nm in Q2, here. Probably want to be on 22nm silicon before end of 2012.
Wall Street and Technology, Call-Out To Regulators: Banks Just Can’t Get Enough Stress Testing, here. This should be lifetime employment for a bunch of people, like the Maxeler FPGA RTL hackers.
“There appears to be room for improvement at virtually every firm, and at some firms the amount of work needed is still significant,” Fed Governor Daniel Tarullo said last week. However, almost all the North American respondents of Sybase’s survey had major reservations over the efficiency of current stress tests.
Mathbabe, Reputational risk is insufficient for ratings agencies, here. Mostly ok argument with one odd exception.
I see the need for ratings agencies – it’s a way of crowd sourcing due diligence, which makes sense, but only if we can trust the ratings agencies as an impartial third party. And I don’t want to seem like someone who doesn’t have faith in humanity, but my trust isn’t won by a system of perverse incentives that has already failed. Let’s just say I have hope for humanity but I also acknowledge our weaknesses.
Usually mathbabe has this stuff thought through reasonably carefully, maybe I am missing something. The idea that we need the rating agencies for crowd sourcing due diligence on a CDO tranche is curious. Doesn’t the spread of the CDO tranche already do the crowd sourcing due diligence in a somewhat classical fashion? Effectively the rating agency sets a second price (AAA, AA, B, etc.), in addition to the market price, for the CDO tranche. We had AAA senior tranches returning 40 bps over USDLIBOR, remember? That’s the part where some guy on the Blue Collar Comedy Tour, I forget which one, would say “Here’s your sign.” There may be some virtue to having some hysteresis in setting the second price through the rating agency, but I suspect the argument is more subtle than “crowd sourcing.”
Actually now that I think about it, given mathbabe’s math background, her argument is sort of lame. She could crush this. The interesting technical problem faced by the rating agencies is the online nature of the process where they are asked to issue a series of ratings on collections of previously rated securities and tranches defined over collections of previously rated securities. These ratings may lag the market price movement of the underlying previously rated securities. How should the rating agency determine ratings so the levels are consistent and minimize the arbitrage available as a consequence of their ratings? The reputation risk insufficiency argument is sort of nonsense if the rating agency does not even have an adequate optimization framework in place to give some sort of hint why everyone is throwing cash at them, lifting their tee-shirts over their heads, and yelling ” The Arb is on!” It’s like debating an undergraduate’s reputation risk for claiming P=NP after the first day of computer algorithms for artists class.
DeLong, Economics 1: Origins of the Financial Crisis and the Downturn, slides, here.