tag:blogger.com,1999:blog-14963913.post990290284768116..comments2023-10-27T20:27:57.900-04:00Comments on Kid Dynamite's World: Synthetic CDO's, Spanish 21 and Sports BettingKid Dynamitehttp://www.blogger.com/profile/17475987512856310577noreply@blogger.comBlogger27125tag:blogger.com,1999:blog-14963913.post-64434851361209974182011-01-18T05:56:48.800-05:002011-01-18T05:56:48.800-05:00You really did a great job. I found your blog very...You really did a great job. I found your blog very interesting and very informative. I think your blog is great information source & I like your way of writing and explaining the topics. Keep it up. I'm going to follow your blog.online generic viagrahttp://www.raymeds.comnoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-36700557330851347912010-01-05T20:04:14.232-05:002010-01-05T20:04:14.232-05:00kd: long time reader first time writer
great stor...kd: long time reader first time writer<br /><br />great story<br /><br />just wanted to point out the rook and the queen is clearly hubris on the susquehanna guys part, even if he got the white pieces and the queen side rook removed. I ran a quick game against chessmaster (wiki estimates its elo at 2790, it estimates its own elo at 2844), and it wasnt that difficult to win, 29 moves and i had mate. (i was playing white but am more than confident black wouldnt be too hard either.)<br />FWIW, i am not that good at chess, and probably if i played USCF events would be a 1450ish player.<br /><br />so yeah, i think polishing off Bobby Fischer with that spot is fair, unless you have 2 minutes to complete your moves and they have 50 or something.<br /><br /><br />~theunrepentantgunnerAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-36345258225386008202009-12-30T12:24:32.231-05:002009-12-30T12:24:32.231-05:00kid just an off topic question. the gambler u know...kid just an off topic question. the gambler u know who spends 30+ hours handicapping. whats is win %?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-52697513775754661192009-12-30T12:23:36.728-05:002009-12-30T12:23:36.728-05:00the chess match never happened.the chess match never happened.Kid Dynamitehttps://www.blogger.com/profile/17475987512856310577noreply@blogger.comtag:blogger.com,1999:blog-14963913.post-46057470354860094342009-12-30T11:11:18.969-05:002009-12-30T11:11:18.969-05:00Excellent post. A guy I knew a long time ago that...Excellent post. A guy I knew a long time ago that taught me a bit had a much simpler mindset but very much along the same lines. "The first question to ask, always, is, whats in it for them?"Danielhttps://www.blogger.com/profile/15018793399599951413noreply@blogger.comtag:blogger.com,1999:blog-14963913.post-30503617976694379562009-12-30T09:14:25.475-05:002009-12-30T09:14:25.475-05:00So did you ever end up playing speed chess in the ...So did you ever end up playing speed chess in the interview? Outcome?<br /><br />Great postAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-49547295080278034072009-12-30T00:39:57.306-05:002009-12-30T00:39:57.306-05:00KD, maybe we should play chess sometime. Spotting...KD, maybe we should play chess sometime. Spotting a queen and rook is huge. I have beaten Experts, though not Masters on occasion(except in multiple exhibitions), and I can't imagine losing to anyone who has spotted me a rook and queen.<br /><br />All that said, I never gamble, and as an actuary, I know the odds of most games that I play.<br /><br />Now, all of that said, I never cease to be amazed at all of the dross I receive in terms of ideas that look good initially, but are lousy after one digs deep.<br /><br />Good post. Makes me wonder how I would have done in the same interview. Quants need to have a greater consideration of qualitative data. When I was younger, I didn't get that.David Merkelhttps://www.blogger.com/profile/05073877918072914309noreply@blogger.comtag:blogger.com,1999:blog-14963913.post-57319130922679600162009-12-29T21:35:47.521-05:002009-12-29T21:35:47.521-05:00Fantastic post Kid Dynamite.
I've written a ne...Fantastic post Kid Dynamite.<br />I've written a new post at my own site which expands on your own thoughts in terms of showing how gambling can teach investors that "This Time It's Different" is a flawed precept that can lead to serious losses.<br />Keep up the good work.<br />John (aka The Masked Financier)John (aka The Masked Financier)http://texasholdeminvesting.comnoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-75662599390706321122009-12-29T20:17:54.771-05:002009-12-29T20:17:54.771-05:00This is 6:41 a.m. anonymous.
Would have loved to b...This is 6:41 a.m. anonymous.<br />Would have loved to be the fly on the wall when Goldman requested the comfort letter from counsel.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-76762850521065942912009-12-29T16:35:41.984-05:002009-12-29T16:35:41.984-05:00A couple of thoughts...
1. Your assumption that a...A couple of thoughts...<br /><br />1. Your assumption that a financial process is Poisson. It is often Fractal, looks Fractal, behaves Fractal. <br />2. There are a million cheats. Insider information, market manipulation, regulators in the tank. The recent spate of gold manipulation on a daily basis is a great example. It was always possible to buy lousy debt at a dime on the dollar. What screwed retail investors was the crooked rating agencies on all these mortgage products, permitting the sale of high risk mortgages at good prices.<br />3. Transaction costs are high in gambling and investing. Gambler's ruin has one proverb; invest in sensible well run companies with a big moat, and don't day trade.Keating Willcoxhttp://wnsh.comnoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-70030938154821278892009-12-29T15:08:50.286-05:002009-12-29T15:08:50.286-05:00models are only as good as the inputs.models are only as good as the inputs.GS751https://www.blogger.com/profile/12104712741442133837noreply@blogger.comtag:blogger.com,1999:blog-14963913.post-9453550442942571032009-12-29T14:25:36.297-05:002009-12-29T14:25:36.297-05:00KD, I'm trying to find an email for you but ca...KD, I'm trying to find an email for you but can't. Could you send me an email so I can write back - regarding reprinting an article at Phil's Stock World?<br /><br />Ilene<br />ileneca@gmail.comilenehttps://www.blogger.com/profile/00859456411740769913noreply@blogger.comtag:blogger.com,1999:blog-14963913.post-32684977248718155112009-12-29T13:23:38.617-05:002009-12-29T13:23:38.617-05:00"anon - those are CDS you're thinking of ..."anon - those are CDS you're thinking of - something different from what this post is about. ..."<br /><br />Well, the checks totally 27 billion were for the CDO(s). The Fed bought the CDO(s) from that list of banks and put the CDO(s) into Maiden Lane III. <br /><br />The 35 billion posted as collateral was essentially CDS-provided protection/insurance. 27 plus 35 equals 62 - the par value of the CDO(s) in question.<br /><br />I'm just trying to figure out who the victims actually were. I agree with you that a pension fund is staffed with all sorts of lawyers, accountants, financial wizards, mathematicians, etc., and they are responsible for the entire decision made by their side of the purchase Their responsibility extended beyond merely reading and understanding every word of the prospectus, regardless of the page or the print size. <br /><br />But if the buyers of the most famous CDO in history, the AIG bailout CDO now held by Maiden Lane III, all of whom appear to have been banks - many of whom also created and sold CDOs, then your argument is all the more compelling.<br /><br />The NYT keeps selling this story: GS victimized these poor people with known bad assets and then made huge profits betting against the victims. Is this even really true? I have a lot of doubts about the scenario they are selling.<br /><br />I'm just trying to get all the pieces on the board because I sense that they are not all on the board right now. Did the banks in the AIG bailout buy the CDOs back from the original buyers? Who were they? Were they also hedged? It sounds like they, if they exist, perhaps were - by the banks that sold the CDO(s) in question, and then those banks purchased CDS from AIG to hedge their risk to the CDO(s) buyers.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-20059354787655226282009-12-29T13:02:11.575-05:002009-12-29T13:02:11.575-05:00Very good post as usual.
I think a large problem ...Very good post as usual.<br /><br />I think a large problem with arguments against the banks is a fundamental misunderstanding of their purpose and history. The banks are in the financial services industry, services being the key word. As they provide services, they hedge out as much of the risk as possible and collect spreads/fees. There is nothing fraudulent providing customers with what they want and having the customers lose when the bet goes against them.<br /><br />I also liked the discussion of counterparty intelligence. It is one of the most overlooked part of investing. Most regard their analysis as superior or that they have just as much information. For example, very few people should feel confident trading energy against the integrated companies. I know of certain ones that besides controlling and monitoring a large amount of the physical activity hire navy SEALs for current information around the globe. If you feel confident being on the other side of that trade, you are a fool/savant.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-20952449460940696652009-12-29T12:30:43.440-05:002009-12-29T12:30:43.440-05:00I don't mind GS (The House) making money off m...I don't mind GS (The House) making money off me (The Client).<br /><br />Because, I am a shareholder in The House.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-32404159318301564822009-12-29T11:01:14.569-05:002009-12-29T11:01:14.569-05:00it's not like an underwritten bond for a corpo...it's not like an underwritten bond for a corporation though - it's a structured OTC trade. <br /><br />clients want more exposure to the housing market. GS says "here's a product that will give you more exposure to the housing market"...<br /><br />it's also important to realize that, as my friend Ted just wrote me, "I think a large number of people don't get the point because they don't understand that "client" in the wall street sense means about as much as a "client" to a hooker (ie a "john") - they are big bags of money for taking, the "relationship" is only as good as its last transaction, and if it is too cheap you should check yourself for STDs afterwards."<br /><br />i responded "yes - and people confuse that with the ADVISORY relationship - which is TOTALLY different"Kid Dynamitehttps://www.blogger.com/profile/17475987512856310577noreply@blogger.comtag:blogger.com,1999:blog-14963913.post-32707670908520960292009-12-29T10:13:17.075-05:002009-12-29T10:13:17.075-05:00But wasn't GS the underwriter? And if so doesn...But wasn't GS the underwriter? And if so doesn't that come with a representation of good faith? And even if that is not so, if GS had no more responsibility to the buyers than a book to a bettor, you have to admit that it is naive of them to think the buyers should just lay down. If all is fair then it is just as fair to get the best attorneys to find a gullible jury to hand those profits back to the buyers.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-63801877859271748772009-12-29T10:09:00.321-05:002009-12-29T10:09:00.321-05:00Great portfolio managers have the advantages of:
...Great portfolio managers have the advantages of:<br /><br />a) Gathering info<br /><br />b) Filtering info<br /><br />...and then acting on it. This takes time....<br /><br />Your analysis is very accurate.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-66405752342322739912009-12-29T09:59:12.792-05:002009-12-29T09:59:12.792-05:00Great post. I think one of the big problems with ...Great post. I think one of the big problems with the banks is that their models tell them to make the bet every time and so they do it. Now, they've got an earful of cider and expect someone else to clean it out for them. They've all gotten the same educations and been taught the same lessons and when they get crazy and think outside the box, it doesn't matter because they're all thinking outside of the same box and coming up with the same things. Straight intelligence is a great thing to have, but it is extremely dangerous without some common sense keeping it in check.Taylorhttps://www.blogger.com/profile/07713988433215125181noreply@blogger.comtag:blogger.com,1999:blog-14963913.post-958363128503494122009-12-29T09:41:28.372-05:002009-12-29T09:41:28.372-05:00some good comments this morning.
anon @ 9:31am:
...some good comments this morning.<br /><br />anon @ 9:31am:<br /><br />"Maybe GS didn't do the equivalent of point-shaving, but it was like they had someone in the locker rooms feeding them up-to-the minute injury reports on every player on every team that was playing." <br /><br />maybe - and there is nothing wrong with that - INFORMATION is the most valuable commodity!<br /><br />you responded to your own point when you said that the fund managers didn't have the capability to do the analysis. That's a HUGE point - if you don't understand the game, DO NOT PLAY. you can't blame the casino after the fact when you didn't read the rules - Spanish 21!!! being prohibited from buying non-AAA paper is not a license to blindly buy AAA rated paper without analyzing it.<br /><br />also, you ask why the ratings agencies aren't more culpable - they certainly SHOULD be! but in my mind, the culpability of the buyers and of the ratings agencies lies well above the culpability of the brokerage houses. Still, no one is blameless - i'm not attempting to argue that GS acted like saints here, although I am tempted to say that they did little wrong other than win the game. <br /><br />which brings me to Anon @ 6:41am's comment - great comment, and it illustrates one thing that GS probably certainly did that is morally bankrupt at BEST, and potentially fraudulent at worstKid Dynamitehttps://www.blogger.com/profile/17475987512856310577noreply@blogger.comtag:blogger.com,1999:blog-14963913.post-33971114335651396532009-12-29T09:31:44.116-05:002009-12-29T09:31:44.116-05:00I think your sports analogy is a good one but I th...I think your sports analogy is a good one but I think you missed the best point. Even in sports betting, if someone has material, non-public information that person can radically skew the odds, and we (for the most part) have tried to make such one-sided bets illegal. Point-shaving, bribing players for information, betting on one's own teams -and sometimes one's sport - are all against the law.<br /><br />Maybe GS didn't do the equivalent of point-shaving, but it was like they had someone in the locker rooms feeding them up-to-the minute injury reports on every player on every team that was playing. <br /><br />You say that pension fund managers should have done their homework, but they simply didn't have the capability. Then you say that the managers shouldn't be buying instruments they don't understand. And while that's true, I will note that there are rules in place to prohibit these managers from buying any NON-HIGHLY rated securities. <br /><br />If the Rating Agencies didn't bless these things (with the help of GS), there would have been no market. So why are these parties not more culpable?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-5573670265704659512009-12-29T09:28:59.536-05:002009-12-29T09:28:59.536-05:00We are definitely playing Spanish 21 in 3 weeks!!!...We are definitely playing Spanish 21 in 3 weeks!!!! PAI GOW!BigShownoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-12530870014402992792009-12-29T08:15:02.806-05:002009-12-29T08:15:02.806-05:00Nice story, Kid. I think you could even go back to...Nice story, Kid. I think you could even go back to Tom Sawyer and the whitewashed fence. But eventually the kids learn not to do deals with Tom Sawyer--the fitting outcome here would be a boycott of GS's prop desk. <br /><br />BTW, did you see the item on the Chinese company which refused to pony up some collateral demanded by GS? To use your bookie analogy--unless they have some way of breaking that guy's thumbs they're going to be out of that business soon.But What do I Know?noreply@blogger.comtag:blogger.com,1999:blog-14963913.post-55088151308472525122009-12-29T06:41:12.682-05:002009-12-29T06:41:12.682-05:00Kid Dynamite
Your analogy comparing investing ...Kid Dynamite<br /> Your analogy comparing investing to gambling is good, but falls short with regards to the Abacus Insurance trade. Goldman went to the Nationally recognized rating agencies and made the case that the majority of the bonds were AAA, which is either duplicitous or fraudulent considering they were making the bet that these securities(insurance) would blow up and pay Goldman handsomely.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-6107657199132924272009-12-29T05:58:46.997-05:002009-12-29T05:58:46.997-05:00Great post - the gambling analogy is entirely apt....Great post - the gambling analogy is entirely apt. I've been <a href="http://www.parkparadigm.com/2006/09/04/a-rose-by-any-other-name/" rel="nofollow">writing about this for years.</a> In the UK there is much more acceptance of this point of view (even if it isn't shouted from the rooftops); the (sometimes) hysterical reaction in the US to the suggestion that betting and investing are of the same cloth is perhaps just a manifestation of a truth that is too uncomfortable for god-fearing citizens to ponder. <br /><br />In any event, while I don't think GS or the sell-side exactly covered themselves in glory with respect to the CDO market, I concur that the lion's share of responsibility lies with the professional buy side that absorbed all this flotsam and asked for more.Seanhttp://www.parkparadigm.comnoreply@blogger.com