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The Returns to Financial Engineering

This post was written by Philip Lane

Willem Buiter writes here about a highly-profitable strategy undertaken by Amherst Holdings.

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This entry was posted on Monday, June 15th, 2009 at 12:51 pm and is filed under Banking Crisis. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

5 Responses to “The Returns to Financial Engineering”

  1. zhou_enlai Says:
    June 15th, 2009 at 3:30 pm

    It is certainly up to politicians to insist on the regulation needed to stop these kind of practices. That such unhealthy still financial products exist on a such a huge scale is terrifying. One would have thought that the potential for CDS to amplify the contagion of financial meltdown was scary enough without having a system which allows this variation on “insider trading”. The patients were certainly busy while in charge of the asylum!

  2. noel Says:
    June 15th, 2009 at 4:28 pm

    This is the least of the worries in the cds market. In insurance, you have to be able to show that you have an ability to meet the insurance payout given certain levels of probability. You only have to post collateral on the market movement of the spreads since the date of inception. Given the low levels of probability of default occurring, there are far more worrying issues in relation to cds than the above small market manipulations.

  3. Pat Donnelly Says:
    June 16th, 2009 at 2:46 am

    I disagree! User 3636etc and Victor Galis have it right.
    CDS use is being abused; the abusers are bit; the abuse will decline. This was both a moral and profitable act by Amherst. Where can I buy into them?

  4. Garry Says:
    June 17th, 2009 at 1:16 pm

    “Financial Engineering”….. What an oxymoron…. what was described there is not engineering of any kind, it is fraud.

    “Financial Skulduggery” or “One more reason to shut down this rats nest” would describe it better…

  5. Pat Donnelly Says:
    June 21st, 2009 at 9:53 am

    http://www.econbrowser.com/archives/2009/06/how_to_lose_on.html

    @ Garry et al
    NB the mortgages were all paid off! The little people won! Amherst won! The big boys, too big to think, lost! The insurance worked!
    The empty moral posturing demonstrates a great deal of what went wrong in Ireland!

    Remember Iceland!

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