Jul. 2nd, 2007

Whoops

Jul. 2nd, 2007 12:00 pm
peterbirks: (Default)
Long-time readers will remember my rants in times past about risk not really disappearing, just being shuffled about and hidden away, with a number of players in the financial world assuming risk that they didn't know they were taking.

You can see how it goes. Secondary bank sees primary bank making a lot of money from proprietary trading. Secondary bank thinks "this must be easy". Sets up its own proprietary trading desk. Gets lucky for a while. Thinks it's good at this game. Increases exposure. Gets unlucky. Goes broke (aka "a capital raising may be necessary").

Those with some sense of history will recall the geniuses at Abbey National, who back in the 1990s came up with a strategy of Jamie Gold-like brilliance. This roughly consisted of "Buy distressed stuff (debt, stocks, bonds, whatever) 'cos, like, well, it was a tenner, and now it's only a quid. So, like it has to be value, doesn't it?"

At which point our resident sage M Woodhouse esq pointed out "yes, your maximum loss here is restricted to all of your money".

Step forward the current mug of the month, the Watford of proprietary trading, one Banca Italease. On Friday it casually confirmed that it would be writing off a loss of more than 600m euros of derivative trades, accepting that "enough is enough". That's a nice big profit for someone on the other side, and you can bet that "the other side" is one of the big American players. Still trying to salvage something from the wrreckage, the Italian bank has retained more than 100m euros in losses in ongoing contracts, hoping for some kind of get-out.

Just how quickly these things can go very wrong indeed is exemplified by the fact that, only on May 22, Banca Italease said that its exposure was 400m euros. So, that's a couple of hundred million in 25 or so working days. Ouch.

You wouldn't have liked to have been the chief risk officer or the CFO getting up each morning, would you?

+++++++++++


On the walk to work this morning the signs of the implications of the smoking ban in "enclosed public spaces" were plain to see. The outside of the old Mezzo, now Floridita, had a dozen or so bottle of beer scattered about, and many more cigarette butts.

It seems odd that a law should be brought in taking smoking away from a place that I can (and do avoid) - viz the inside of Floridita - and transferring it to a place that I can't (viz, the pavement outside).

And how can you call a pub (or a restaurant) an "enclosed public space"? I mean, try taking a half-bottle of brandy into a pub and sitting down for a drink, or taking your sarnies to Claridges and sitting down for a snack-up, and see where it gets you.

I was fine with people smoking in pubs. I can choose to go there or not. If you are bar staff, just don't work there if you are a non-smoker. To say that bar staff "don't have a choice" is gibberish. Of course they have a choice. It would be different if they chose to work in an environment that was non-smoking, stayed in that job for a decade, and then for smoking to be allowed.

Howevcer, just as bombers move to soft targets when the hard targets are protected (question to American Embassy, Downing Street and Parliament, what makes you special that you should be protected when young people enjoying themselves for the evening at a nightclub are vulnerable? If you did not have those barriers, the bombers would be going after you. Because you have the barriers, they go for soft targets) so the laws regarding smoking will soon shift to the outside as well. Westminster City Council will be the first to push for a ban on smoking on its streets, because the number of cigarettes on pavements is growing apace.

++++++++

Speaking of the "bombing paradox", Gordon Woo at RMS, a guy with a brain the size of a planet, put out an interesting analysis of terrorist strategy that could have come straight from the pen of Chen and Ankeman.

The attack was directed at a London nightclub, a soft attractive target, without barrier protection against car bombs. This is consistent with the principle that terrorists follow the path of least resistance in directing attacks at attractive targets with security weaknesses.

An explanation is that the number of operatives involved was relatively small. Too many terrorists spoil the plot. The more operatives there are in a plot, perhaps with multiple attack targets, the greater the chance that the plot will fail due to information leakage.

There is an optimal stopping point in attack planning. Beyond this point, the risk of the plot being discovered outweighs the marginal benefit of enlarging the plot. With increased resources allocated to the UK security services, the optimal stopping point may be getting earlier, with the consequence that there may be a spate of moderate scale attacks, such as attempted today.



This is the logical analysis. But what are the thought processes of people putting up the huge barriers outside more "vulnerable" public buildings? Is it:

a) We don't give a shit if the bombers hit elsewhere. We'll be okay.

or is it

b) You see, what will happen is, the terrorists will come along with a plan to bomb the Houses of Parliament. They will arrive at the Houses, and this is the conversation that will ensue:

"Crikey, Osama Jr, there's a lot of security here. This will be a hard place to bomb."
"I think you're right, Bekhahmed. Perhaps we'd better give this whole bombing idea up, eh"
"Yes. I agree".


I don't think so.

And yet, that's the kind of hidden implication of increasing security in certain places (such as the City's "Ring of Steel"). An assumption that the putative bombers will look at the security and give it all up as a bad job. Of course they won't.

_________________________

August 2023

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