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{{a|devil|{{catbox|newsletter draft}}}}Newsletter cribnotes
{{a|devil|{{catbox|newsletter draft}}}}Newsletter crib-notes
====In progress====
*[[Reasons to hope we are in a post truth world]]
*[[Contract and tort as finite and infinite games]]
*[[VAR as a metaphor for litigation]]
*[[Working from home]]
*[[The domestication of law]]
*[[Data modernism]]
*[[ABS field guide]]
*[[System redundancy]]
*[[Legal evolution]]
*[[Party A and Party B]]
*[[A swap as a loan]]
*[[When variation margin attacks]]
====More on averagarianism and customer surveys====
Customer surveys are a kind of self-serving averagarianism. To ask online subscribers "how satisfied are you with the quality of the Times’ journalism” on a five point scale from “extremely satisfied” to “extremely dissatisfied” asks the user to construct some sort of ad hoc blended average of the quality of all the writing in the paper, whereas it inevitably varies between departments, between writers, topics, articles, and even days of the week. And that average reflects the priorities and values of the individual readers, who are not the same. Some might buy the times —and therefore judge it —  for its sports coverage, others for the comment, business, politics or cultural coverage, or any combination. The times, we imagine, already knows which subscribers read which articles, so it is not learning anything useful by asking an artificial question, aggregating what are, effectively, responses to different questions, which users are already answering in the affirmative, anyway, because we should presume they buy the paper for the parts they like, and they like the parts they buy the paper for.
 
Nor is there any value in carefully framing questions to drag out specific answers which may play well when presented as a graphic in an investor presentation, but which don't really reflect the customer's real interests or opinions.
===Crisis of confidence in the Western intellectual tradition===
[[Cultural appropriation]] as a backwards way of looking at memetic strength.
 
Basic sense of shame in the western intelligentsia, when in fact  western intelligentsia has (a) created the tools for all this hand-wringing, such as Marxism, critical theory, which grew directly out of the enlightenment tradition and arguably could not have emerged in any other culture (b) painstakingly documented and recorded and studied the indigenous cultures it was supposedly demolishing, giving them the tools for their present revival (c) facilitated the sharing and cultural transmission of its own intelllectual property — including, by the way, the concept of “intellectual property” enabling incredible advances in the standards of living of people all over the world. The remarkable tolerance for new ideas and acceptance of culture
 
===Bowie, bonds and the bloodbath of banking===
===Bowie, bonds and the bloodbath of banking===
Dilemma of banking matching long term liability to short term risks. Making a spread which is the same thing as maintaining a capital buffer comma when your assets cannot go up in value and your liabilities cannot go down. Well evidence in silicon valley bank which locked itself into long-term assets at low interest rates, meaning it had absolutely no upside and significant Downside on them even without credit loss, while it's liabilities were deposits comma being extremely short term, were very sensitive to interest rates and could be withdrawn at the moment's notice. The trick to making the business work is to manage that gap semicolon this as we have seen it's partly a function of treasury competence and partly a function of market confidence petards and black ducks flap around.
Dilemma of banking matching long term liability to short term risks. Making a spread which is the same thing as maintaining a capital buffer comma when your assets cannot go up in value and your liabilities cannot go down. Well evidence in silicon valley bank which locked itself into long-term assets at low interest rates, meaning it had absolutely no upside and significant Downside on them even without credit loss, while it's liabilities were deposits comma being extremely short term, were very sensitive to interest rates and could be withdrawn at the moment's notice. The trick to making the business work is to manage that gap semicolon this as we have seen it's partly a function of treasury competence and partly a function of market confidence petards and black ducks flap around.


This is of course hardly new to silicon valley bank and has been the perennial problem with which banks must wrestle. The classic bank lending activity is a mortgage colon collateralized, secured over real estate, but long dated and something the bank must commit to for a long period of time stop banks generally fund these mortgages with short dated instruments such as deposits.
This is of course hardly new to silicon valley bank and has been the perennial problem with which banks must wrestle. The classic bank lending activity is a mortgage: collateralized, secured over real estate, but long dated and something the bank must commit to for a long period of time stop banks generally fund these mortgages with short dated instruments such as deposits.


How to manage that risk? Largely, by diversity on both sides of the ledger. Banks would lend at scale to thousands or hundreds of thousands of homeowners and take deposits, x-scale from thousands hundreds of thousands or millions of depositors. The basic play was that such diversity would give the depositors confidence not to all withdrawal their money at once comma and on the asset side would give the bank confidence that not all homeowners would default on them mortgages at once. It became a matter of actual aerial management; Banks new that some part of its deposit base was liable to withdrawal bracket and deposit); and new that some part of its asset base was liable to default. It didn't need to know which part; it could manage actuarily on the assumption that, say, 5% of a mortgage portfolio might default over a given period.
How to manage that risk? Largely, by diversity on both sides of the ledger. Banks would lend at scale to thousands or hundreds of thousands of homeowners and take deposits, x-scale from thousands hundreds of thousands or millions of depositors. The basic play was that such diversity would give the depositors confidence not to all withdrawal their money at once comma and on the asset side would give the bank confidence that not all homeowners would default on them mortgages at once. It became a matter of actual aerial management; Banks new that some part of its deposit base was liable to withdrawal bracket and deposit); and new that some part of its asset base was liable to default. It didn't need to know which part; it could manage actuarily on the assumption that, say, 5% of a mortgage portfolio might default over a given period.
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Bank regulators would manage for that risk by requiring banks to hold a level of capital against its mortgage book that more than covered that default rate.
Bank regulators would manage for that risk by requiring banks to hold a level of capital against its mortgage book that more than covered that default rate.


Banks crewmour sophisticated comma as did bank regulation, and different capital ratio's might be applied to different trading and banking books based on this actuarial assessment of the embedded risk.
Banks grew more sophisticated, as did bank regulation, and different capital ratios might be applied to different trading and banking books based on this actuarial assessment of the embedded risk.
==Rokos short primer==
... Punting on interest rates


==How do you find the time bombs in your balance sheet==
But how to manage, actuarily, that embedded risk? How, indeed, to know exactly what it was? As long as this risk was buried in the books of the financial institution there were experts who could model the probabilities based on historical defaults of similar mortgages. It's all very quantitative and analytical. Regulators would scrutinize this actuarial model, because it would determine capital calculations, but other than specific equity analysts, it held little interest outside the institution.
The JC found to his surprise and delight that his big sister reads the newsletter — normally no-one in the Contrarian clan pays him the blindest bit of attention — and after his peroration about alternative tier one capital this week she had a question: does ''anyone'' understand the banking system?


It’s a good question. The level of bank analyst Twitter shade-throwing — and central banker Twitter shade-throwing, for that matter — speaks to weak opinions strongly held.


Is it — maybe, that no-one really knows? That it is this giant organic contraption that does what it will — for that is the whole of the law — and the those who rise to executive position do so by fiat and have as much understanding and control over these infernal machines as a chimpanzee strapped to a rocket?
In essence what are bank risk analyst would be doing was analysing the incidence of defaults over a given economic cycle and extrapolating from that a likely worst case scenario for defaults on the portfolio within a “liquidity period” — the time it would take the bank to foreclose on its loan get out of its risk position.


Did the quick succession of chief executives at Credit Suisse really have a clue what was buried in their balance sheet as the successive horrors revealed themselves?
The likelihood of default of course varies through the economic cycle: for most of it, secured lending is very safe: known to value ratios traditionally were not often greater than 70 percent, meaning a bank would be covered for its whole claim in every situation except where the property value dropped more than 30%.  and defaults are almost nil. During stressed parts of the cycle (following financial crashes and so on) that default level can rise to five or possibly ten percent of the portfolio.


There is a chain of command question here.
This meant that even in a stressed situation the great majority of the portfolio was completely safe.  


Clearly the chief risk officer cannot know the trade-level minutiae of every risk position in the book. For that she must rely upon an army of risk managers, hierarchically organised, to patrol their posts, sending reports to watch commanders, who in turn collate and send theirs to a regional coordinator, who will take the reports of several watch commanders and distil from that a highlights reel to go to the risk steering committee — and so on. That process hass somehow to deduce contextualise and aggregate those individual risk analyses, but at the same time deduce emergent risks from the interaction of those different situations, as well as wider trends and hotspots in the wider market.
But, which 10% was not? Therein the dilemma; therein the problem. Since I don't know which thousand of my 10,000 mortgages will default,<ref>it is a little more complicated than that because collateralized loans almost never recover at a zero value, so that 10% loss might be spread over 30 or 40% of the portfolio, but the principal remains the same for every $10 invested, 9 comes back.</ref> we must apply a capital charge against to ''all'' of them. If only we could know definitively that these 9000 mortgage would not default we could apply a lower capital rating.


There has been a trend over decades now towards technology and process to bolster human analysis. In a tacit acknowledgement that perhaps it is too hard for mortal minds. The problem being that technology and process hasn't proved much good either.
Needless to say, obviously impossible: one cannot predict the future.


Part of the problem lies in the nature of catastrophic events. They have an unnerving habit of striking when and where you least expect it: where, QED, in places your telescopes and search beams are ''not'' pointed. The most successful firms on the street (LTCM, Enron) the chairman of the NASDAQ (Bernie Madoff). A sleepy benchmark interest rate-setting process managed by the dear old British Bankers’ Association (LIBOR).  A Family Office running its own money and borrowing in a secured, margined basis (Archegos). Flighty bank depositors (SVB, Signature)
Banks head to problems then: long-term liabilities that could stretch over several economic cycles and which were hard to quickly liquidate, and which attracted a hefty capital charge despite, in most times, being relatively safe Investments.


They also have an unnerving habit of happening very quickly and uncontrollably. They have the characteristic of “normal accidents”, so named by Charles Perrow in his {{Br|Normal Accidents: Living with High-Risk Technologies}}: that is, a distributed system displaying a combination of non-linear, [[complex]] interactions and “[[tight coupling]]", where chain reactions are easy to set off and hard to stop.  In  systems of this kind, Perrow thought catastrophic accidents were not just likely but, from time to time, ''inevitable''. Such unpredictable failures are an intrinsic property of a complex, tightly coupled system, not merely a function of “operator error” that can be blamed on a negligent employee — although be assured, that is how management will be inclined to characterise it if given half a chance.
Hence the rise of the rating agency: independent Financial experts applying independent models to portfolios and calculating probabilities of default comma from which the rating agencies could derive ratings. Rating methods are of course opaque and in scrutable, but the general idea was that a triple A instrument was unimpeciably safe, and therefore would attract a lower or even zero capital charge)


The independent private rating agencies gradually became embedded into the US regulatory system such that what mattered comma more than one's internal appreciation of risk, was the rating that could be applied to one's security. Near line back to our mortgage portfolios and say one has a mortgage portfolio of 10,000 properties of which any could, conceivably, default in a given period. Even in a period of extreme stress perhaps 10% would be likely to default no more.


History suggests risk managers aren’t very good at this. Our old friend Archegos
===Music royalties===
This same problem of predictability of future income streams applies in many areas of finance. Credit card receivables, automobile loans, and even songwriting royalties.


Imagine you are an otherworldly, androgynous, boundary pushing British musician from the 1970s. Buy the 1990s you have behind you 25 error defining albums and about catalogue of music which has defined a generation of which the JC proudly declares membership. People still listen to your music and you have a healthy forward flow of royalty income. But it's in determinate, and it's in the future. Cash in hand is so much better than cash you may or may not be paid in a year's time.


Sidney Dekker’ {{fieldguide}}
==Rokos short primer==
... Punting on interest rates


The question has particular urgency for the the executive suite at UBS. who has just taken on the assets and liabilities of Credit Suisse. While they appear on their face to have bagged the steal of the century, Credit Suisse is proven capability of sustaining and think of glee large losses in a short period must have giving them paws for thought. For who is to say that is not another 10 billion dollar loss buried somewhere in that balance sheet?
Who, in other words, would be chief risk officer of a large financial institution. We know, in the case of silicon valley bank, that the answer to that question happened to be no one.
Would it be possible, with sufficient acumen tonight to regard the books and records of an institution and be confident that there were no any bombs lying in wait?
If about even has one, a global chief risk officers job. Must be pretty thankless. Not only is the the size and complexity of a universal bank's balance sheet in itself mind-bogglingly difficult to get a grasp of, but the individual problems that can cause a a meltdown have to particular qualities colon firstly, they tend to come from the place where you least expect it full stop secondly they tend, From a distance, not to look like festering wounds at all all. To the contrary, they often look like exceedingly profitable situations. The Archegos situation is a, cough, prime example.
So a chief risk officer simply does not have the bandwidth, time, or analytical powers to deduce aggravated risk situations by herself. She must rely on her reporting chain — it might be six layers deep — to surface these risks and bring them to her attention. The chief risk officers job, in essence, is to ensure she has the right systems and controls in place that can identify these situational wrists and escalate them to her.
===Hindsight is a wonderful thing.===
This is why we should take the moral dudgeon of regulators, politicians, and why is after the fact financial commentators with a pinch of salt. In hindsight, there is only one path of history. In foresight there are potentially infinite ones. Any prospective analysis of a disaster scenario who is entitled to treat each decision as as a known calculation with a determined outcome. That information is necessarily not available to persons making the decision at the time.
Who would be credit suisse’s chief risk officer? Who would be ubs right now
Who would be SVB’s? — trick question! SVB didn’t ''have'' one!
The Archegos cautionary tale: the individual risk officer might know, but
How would a chief risk officer ever see that.
Risk meeting by data
SME action  where are the risk? Who makes most money etc.


==Hammer of the gods==
==Hammer of the gods==
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==Bad apples 2==
==Bad apples 2==
The fannies that Gary lineker is going to be second back from football coverage on account of his is political expression, and JP Morgan will be seeking to call back 7 years pay from jazz Staley, I thought we would go a bit further into the barrel of bad apples.
Particular the curious recent phenomenon of corporations transmogrify in themselves into moral guardians.  
Particular the curious recent phenomenon of corporations transmogrify in themselves into moral guardians.  


There once was a time that corporations Harvard no illusions that their role on the planet was the comparatively a moral one of generating returns for their shareholders.  
There once was a time that corporations harboured no illusions that their role on the planet was the comparatively amoral one of generating returns for their shareholders.  


Some kind of mandate drift with slippage over the last 20-years which is seen corporations increasingly anxious to project and signal social and political values. These things do not come from shareholders, but are generated in the executive.
Some kind of mandate drift with slippage over the last 20 years which is seen corporations increasingly anxious to project and signal social and political values. These things do not come from shareholders but are generated in the executive.


This has created at least three kinds of dissonance  
This has created at least three kinds of dissonance  


1 is is a kind of judgemental overreach where by corporations feel entitled to impinge on and evaluate the behaviour of their employees outside the parameters of their professional role.
1 it is a kind of judgemental overreach whereby corporations feel entitled to impinge on and evaluate the behaviour of their employees outside the parameters of their professional roles.


2 is an old kind of dissociation of The corporation from the actions of its employees inside there professional roles. This is the bad apple fillongley where the corporations manage to control themselves not as perpetrator common examples the Wells Fargo false accounting comma and more recently checked and Morgan study horror at the behaviour of it's former investment bank chief executive Jes Staley
2 is an old kind of dissociation of “the corporation” from the actions of its employees ''inside'' their professional roles. This is the bad apple phenomenon where the corporations manage to control themselves not as perpetrator, examples the Wells Fargo false accounting, and more recently J.P. Morgan’s studied horror at the behaviour of its former investment bank chief executive, a man who the organisation recruited, employed and promoted to its highest offices over 30 years.


The third is a dissonance between the the public museums of the organisation particularly in The social justice and esg space and its actual behaviour, which may take in facilitating money laundering, financing terrorism drugs and and chips, evading tax and assisting clients to evade tax and bracket as per above the food in its own customers on a fairly systematic scale.
The third is a dissonance between the public musings of the organisation, particularly in the realms of social justice and ESG, and its actual historical behaviour, which may take in facilitating money laundering, financing terrorism, drugs and and chips, evading tax and assisting clients to evade tax and bracket as per above the food in its own customers on a fairly systematic scale.


===2022===
===2022===
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Whole Earth Catalog
Whole Earth Catalog


[[Blockchain]] and the financialisation of everything. How block chain commits the daycare fallacy - {{author|David Graeber}}’s debt analysis
[[Blockchain]] and the financialisation of everything. How blockchain commits the daycare fallacy - {{author|David Graeber}}’s debt analysis


Superstition → a belief based on a fear of the unknown and faith in magic or luck. Actions based on that belief can lead to ’'malign'' outcomes (e.g. ritual sacrifice) benign/neutral outcomes (touching wood, rubbing David Hume’s toe) or a method for undertaking a task you had to do anyway (putting your cricket pads on in a certain order before batting: you have to put your pads on in ''some'' order and neither is (objectively) worse than the other, so from a rationalist perspective the superstition here has no practical effect on the world at all.
Superstition → a belief based on a fear of the unknown and faith in magic or luck. Actions based on that belief can lead to ’'malign'' outcomes (e.g. ritual sacrifice) benign/neutral outcomes (touching wood, rubbing David Hume’s toe) or a method for undertaking a task you had to do anyway (putting your cricket pads on in a certain order before batting: you have to put your pads on in ''some'' order and neither is (objectively) worse than the other, so from a rationalist perspective the superstition here has no practical effect on the world at all.


On the other hand acting out a superstition can have unintended psychosomatic consequences (my confidence my pads went on in the lucky way may trigger for getting into system 2? - no opportunity cost ... )
On the other hand, acting out a superstition can have unintended psychosomatic consequences (my confidence my pads went on in the lucky way may trigger for getting into system 2? - no opportunity cost ... )
CF hubris: missing the humility of acknowledging there's something bigger than all of us out there
CF hubris: missing the humility of acknowledging there's something bigger than all of us out there
pascal’s wager → opportunity cost and importance of psychological safety and community consensus (believing God in salt lake City) → modern day superstition netting ESG (motivated irrationality = the livelihoods one can make from believing stupid things
pascal’s wager → opportunity cost and importance of psychological safety and community consensus (believing God in Salt Lake City) → modern day superstition netting ESG (motivated irrationality = the livelihoods one can make from believing stupid things


Paradigm = system. Explains the multiple paradigms in Kuhn's model ... They are all paradigms - interlocking systems
Paradigm = system. Explains the multiple paradigms in Kuhn's model ... They are all paradigms - interlocking systems
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