Poker Pals
Jun. 28th, 2006 03:45 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
peterbirksIt's fun when you go into Party Poker and click on "Player Search" to find out where the fish are playing. Most of them have disappeared of course, but a few remain and you add a few every week to keep the sourcefile sufficiently large.
But very few of them are still playing at the same level. Having (presumablY) got slaughtered at Limit, most seem to shift to either $100 no limit tables, or to $11 STTs, or (occasionally) to MTTs. Some have moved down the food chain to lower stakes, while some decide to try their luck at six-max.
It is undeniable that the fish might prefer six-max, because the variance is inherently higher. Either they will go broke even quicker or they will hit a lucky run.
A few, just a very few, actually move up in stakes. This indicates one of two things. Either they got very lucky and moved up, or my own analysis of them was wrong. If it's a small sample (and often my "fish" designation is based on 50 hands or so) then there's the chance that that player just happened to get a lot of good hands in that sample. Alternatively, this player might be one of that small breed that seem to be able to play 40% to 45% of pots, raise 20% to 25% of the time, and yet still be a winner. They do exist. I've seen them. Playing in such a fashion they can't be proficient multi-tablers, because they are too involved on just one table. Caro has noted that it's quite possible for two equally skilled players to play, say, 15% of pots or 30% of pots, and to come out roughly the same. This is because that "extra" 15% are zero EV hands, which you can either fold or play, without any long-term difference. For a particularly kind of player, a negative EV hand can be turned into a zero EV hand, meaning that you get these players seeing large percentages of flops, lookinglike fish, and yet being a winner. They are the latter-day examples of John Fox's "legendary ASQ".
+++++
The games at the moment are really bad. perhaps the WSOP pushes every fish over to tournaments and satellites. Perhaps the satellites have taken their cash. Whatever, there's just one game on Ultimate at $3-$6 and one at $2-$4. The $5-$10 has six players at one table. On Party, the maximum average pot size at any table from $2-$4 to $5-$10 is six big bets. Most average 4 to 5 big bets. On Stars, where I'm just spending a week to clear the bonus, there are hordes of 19% seeing the flop at $2-$4 and $3-$6.
You see what I mean about the bollocks being talked on a lot of the sites about masses of fish waiting to be caught? :-)
If they are, they are hiding pretty well. Grim times indeed.
+++++
Technical bit: Ignore if not interested in finance!
An announcement went out this morning from Sampo, a Finnish bank. No-one will pay much attention to it. Here's the full text.
Sampo Bank plc, part of the Sampo Group, will securitize approximately one billion euros of the exposure of corporate loans in its balance sheet. The reference portfolio consists of the loans of over 600 Finnish companies. The loans will remain in Sampo Bank's balance sheet and the arrangement will thus not affect the agreements between the bank and its customers in any way. This is a mechanism by which Sampo Bank can adjust its credit risk profile and release capital for future growth.
Securitization will be implemented by a company established especially for this purpose. The company will issue bonds whose final return will be dependent on realized credit losses from the reference loan portfolio, and offer them for subscription by investors. The company will compensate credit losses arising for the bank on the basis of a credit derivatives contract between it and the bank .
So what, you might think. And, indeed, the whole tenor of the announcement downplays any interpretation that this makes any difference at all. Its purpose, says Sampo, is to "adjust its credit risk profile and release capital for future growth".
But, therein lies the tale. This is what a number of banks are doing. In the old days, a bank was kind of a broker between depositors and borrowers. They didn't like being called brokers, but that was what they were. People deposited their money in the bank, and the bank lent it out. If they lent it to the wrong people, they were in a bit of shit. If they got into a lot of shit, then the depositors were in shit, because they might not get their money back. But it was in the interest of the bank to make prudent loans, if only because being an executive at a bank that goes belly-up because of bad loans doesn't look good on the CV.
Indeed, there is a current-day example of this. The Agricultural Bank of China theoretically has 25% "non-performing loans". In fact the figure is far worse than that, because local managers are lying to their regional superiors, who are lying to their national superiors. It's the old Stalinist five-year plan reports in action. Fucking up is not an option, so, if you fuck up, you might as well lie about it, because things couldn't be worse than if you told the truth.
Sampo's manoeuvre changes the rules of banking. What it has done is taken a billion euro of loans, and transferred the risk associated with those loans to another company, which sells bonds. Institutional investors buy these bonds (which can be spliced and diced into different tranches of assumed risk, paying different rates of interest) and, if the borrowers default, the institutional investors don't get their dividends. If things go very bad, they don't even get their capital.
But, and this is the point. The bank doesn't really give a shit. If the loans go tits up, they can point to the rates offered and the nature of the beast.
In other words, we enter the serious world of moral hazard. Sampo, by its own admission, has done this "to release capital for future growth". And what does that mean? Why, to make more loans, of course, which it can then securitize, in order to release even more capital "for future growth". What you have is a bank that seriously wants to lend money, in order to grow. Employed senior executives like to grow. They get higher bonuses, bigger cars, bigger desks in bigger offices with bigger-busted secretaries.
You would think that people would learn from history, from the Savings & Loan scandals of the 1980s in the US. But, well, 20 years is an aeon in financial services. It's going to take one almighty balls-up, a seriously massive default, before the institutional investors realize that perhaps allowing banks to lend money without assuming any of the risk associated with lending that money might not be the best idea in the book.
PJ
But very few of them are still playing at the same level. Having (presumablY) got slaughtered at Limit, most seem to shift to either $100 no limit tables, or to $11 STTs, or (occasionally) to MTTs. Some have moved down the food chain to lower stakes, while some decide to try their luck at six-max.
It is undeniable that the fish might prefer six-max, because the variance is inherently higher. Either they will go broke even quicker or they will hit a lucky run.
A few, just a very few, actually move up in stakes. This indicates one of two things. Either they got very lucky and moved up, or my own analysis of them was wrong. If it's a small sample (and often my "fish" designation is based on 50 hands or so) then there's the chance that that player just happened to get a lot of good hands in that sample. Alternatively, this player might be one of that small breed that seem to be able to play 40% to 45% of pots, raise 20% to 25% of the time, and yet still be a winner. They do exist. I've seen them. Playing in such a fashion they can't be proficient multi-tablers, because they are too involved on just one table. Caro has noted that it's quite possible for two equally skilled players to play, say, 15% of pots or 30% of pots, and to come out roughly the same. This is because that "extra" 15% are zero EV hands, which you can either fold or play, without any long-term difference. For a particularly kind of player, a negative EV hand can be turned into a zero EV hand, meaning that you get these players seeing large percentages of flops, lookinglike fish, and yet being a winner. They are the latter-day examples of John Fox's "legendary ASQ".
+++++
The games at the moment are really bad. perhaps the WSOP pushes every fish over to tournaments and satellites. Perhaps the satellites have taken their cash. Whatever, there's just one game on Ultimate at $3-$6 and one at $2-$4. The $5-$10 has six players at one table. On Party, the maximum average pot size at any table from $2-$4 to $5-$10 is six big bets. Most average 4 to 5 big bets. On Stars, where I'm just spending a week to clear the bonus, there are hordes of 19% seeing the flop at $2-$4 and $3-$6.
You see what I mean about the bollocks being talked on a lot of the sites about masses of fish waiting to be caught? :-)
If they are, they are hiding pretty well. Grim times indeed.
+++++
Technical bit: Ignore if not interested in finance!
An announcement went out this morning from Sampo, a Finnish bank. No-one will pay much attention to it. Here's the full text.
Sampo Bank plc, part of the Sampo Group, will securitize approximately one billion euros of the exposure of corporate loans in its balance sheet. The reference portfolio consists of the loans of over 600 Finnish companies. The loans will remain in Sampo Bank's balance sheet and the arrangement will thus not affect the agreements between the bank and its customers in any way. This is a mechanism by which Sampo Bank can adjust its credit risk profile and release capital for future growth.
Securitization will be implemented by a company established especially for this purpose. The company will issue bonds whose final return will be dependent on realized credit losses from the reference loan portfolio, and offer them for subscription by investors. The company will compensate credit losses arising for the bank on the basis of a credit derivatives contract between it and the bank .
So what, you might think. And, indeed, the whole tenor of the announcement downplays any interpretation that this makes any difference at all. Its purpose, says Sampo, is to "adjust its credit risk profile and release capital for future growth".
But, therein lies the tale. This is what a number of banks are doing. In the old days, a bank was kind of a broker between depositors and borrowers. They didn't like being called brokers, but that was what they were. People deposited their money in the bank, and the bank lent it out. If they lent it to the wrong people, they were in a bit of shit. If they got into a lot of shit, then the depositors were in shit, because they might not get their money back. But it was in the interest of the bank to make prudent loans, if only because being an executive at a bank that goes belly-up because of bad loans doesn't look good on the CV.
Indeed, there is a current-day example of this. The Agricultural Bank of China theoretically has 25% "non-performing loans". In fact the figure is far worse than that, because local managers are lying to their regional superiors, who are lying to their national superiors. It's the old Stalinist five-year plan reports in action. Fucking up is not an option, so, if you fuck up, you might as well lie about it, because things couldn't be worse than if you told the truth.
Sampo's manoeuvre changes the rules of banking. What it has done is taken a billion euro of loans, and transferred the risk associated with those loans to another company, which sells bonds. Institutional investors buy these bonds (which can be spliced and diced into different tranches of assumed risk, paying different rates of interest) and, if the borrowers default, the institutional investors don't get their dividends. If things go very bad, they don't even get their capital.
But, and this is the point. The bank doesn't really give a shit. If the loans go tits up, they can point to the rates offered and the nature of the beast.
In other words, we enter the serious world of moral hazard. Sampo, by its own admission, has done this "to release capital for future growth". And what does that mean? Why, to make more loans, of course, which it can then securitize, in order to release even more capital "for future growth". What you have is a bank that seriously wants to lend money, in order to grow. Employed senior executives like to grow. They get higher bonuses, bigger cars, bigger desks in bigger offices with bigger-busted secretaries.
You would think that people would learn from history, from the Savings & Loan scandals of the 1980s in the US. But, well, 20 years is an aeon in financial services. It's going to take one almighty balls-up, a seriously massive default, before the institutional investors realize that perhaps allowing banks to lend money without assuming any of the risk associated with lending that money might not be the best idea in the book.
PJ
![[identity profile]](https://www.dreamwidth.org/img/silk/identity/openid.png){kind=small}
the one time I really like lawyers or doctors.
Date: 2006-06-28 03:41 pm (UTC)There is a third possibility. Money is what makes poker happen. Fish can remain happy, active fish forever if the stakes at which they play are insufficient to change their "real life" financial circumstance. Sometimes a fish moves up because he got a big raise at work, or he got an inheritance, whatever, he has merely become wealthy enough to withstand being a losing player at an even higher level.
Thank G-d for the fish's outside income flows.
no subject
Date: 2006-06-28 05:30 pm (UTC)This looks like a fairly normal structured product idea: allow retail investors to sell credit protection to a bank. If the reference entities in the loan portfolio don't default then the bond buyers get some outperformance.
Is there something new and different in the Sampo issue that I've missed?
no subject
Date: 2006-06-28 07:02 pm (UTC)Securitization is quite normal, but I think that it is inevitably diluting personal responsibility when it comes to lending money. Eventually there will be a big bang. Just because it has come to be seen as standard does not mean that it is safe. I don't want to get back to the point of "non-correlation" often not being as non-correlated as people think, or liquidity not being as liquid as people thing, but that's the old drum that I am banging.
I know that you mix with computer people and bankers at work, and most of these people are convinced that people like me and Philip Coggan are doomsayers who don't understand how the modern financial world really works. Unfortunately, it's actually a situation where I don't want to have to say "I told you so".
PJ
no subject
Date: 2006-06-28 07:25 pm (UTC)My personal bugbear at the moment, and one that I could contemplate researching and writing a book about (if I had the energy and if I thought anyone would buy or read it) can be encapsulated in one short phrase: "misalignment of objectives".
In this case, the objectives of the financial institution and the individuals within it are at best temporally misaligned: the individual will optimise for his/her maximum benefit over a much shorter timeframe from that of the organisation. So in a sense they're getting a free option from their employer - if they are successful in the short term they gain substantially, if they fail they incur no loss other than future salary, negative bonuses not being exactly common. The bank, of course, may disappear. it's another angle on the stuff Taleb writes about.
The first step in dealing with such a misalignment has to be to understand what the motivations of the various entities are (a non-trivial exercise) before looking for strategies that may reduce the discrepancy. Something like that.
I think this may be one of the problems that Sarbanes-Oxley, in its ham-fisted way, is trying to address - making CFOs more personally responsible may be a way of causing a shift in their personal objectives to align them more closely with those of their employers. I doubt that this was the specific intent, but I believe it's an effect.
As I say, something like that.
Mike
The Bank of England
Date: 2006-07-05 09:39 pm (UTC)Re: The Bank of England
Date: 2006-07-05 11:32 pm (UTC)Of course it's not just the traders who need to be so restricted, it's everyone above them in the food chain, as they also have the option.
I've worked with goodness knows how many traders over the last 20 years, some have quite frankly been brilliant, others, well not so. The "Flaming Ferraris" at CSFB were an interesting mix, for one notable example.
It all makes you wonder what non-executive directors do, doesn't it?