The devil is not in the detail. The devil is the detail: Difference between revisions
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On this commonplace is much of the [[Magic circle law firm|magic circle]]’s patter premised: to give them credit, they are ably aided in it by their [[In-house lawyer|in-house clients]], many of them refugees of the same brotherhood, and whose livelihoods are guaranteed by the same presumption. | On this commonplace is much of the [[Magic circle law firm|magic circle]]’s patter premised: to give them credit, they are ably aided in it by their [[In-house lawyer|in-house clients]], many of them refugees of the same brotherhood, and whose livelihoods are guaranteed by the same presumption. | ||
''If you make yourself really complicated, you can exclude virtually everyone.''<ref>With apologies to {{Author|Daniel Dennett}}’s “if you make yourself really small, you can externalise virtually everything”.</ref> | {{quote|''If you make yourself really complicated, you can exclude virtually everyone.''<ref>With apologies to {{Author|Daniel Dennett}}’s “if you make yourself really small, you can externalise virtually everything”.</ref>}} | ||
And, to be sure, should you peruse your average [[securitisation]] — here’s the prospectus for [https://capitalmarkets.fanniemae.com/media/6516/display Multifamily Connecticut Avenue Securities Series 2019-01 Notes Due October 2049] — you will soon be | And, to be sure, should you peruse your average [[securitisation]] — here’s the prospectus for [https://capitalmarkets.fanniemae.com/media/6516/display Multifamily Connecticut Avenue Securities Series 2019-01 Notes Due October 2049] — you will soon be reaching for the proverbial spoon, to scoop out your own eyes. | ||
Some 25 years ago the European Commission hit upon the idea of requiring structured products manufacturers to produce a one-page summary of the key risks of financial products being offered to the public. The document, a [[key investor information document]] became a part of financial products regulation, over the immense and highly principled objections of the legal community, on the grounds that it is ''impossible'' to adequately explain the risks of a complicated legal product in fewer than the 80-100 pages it was presently taking. | Some 25 years ago the European Commission hit upon the idea of requiring structured products manufacturers to produce a one-page summary of the key risks of financial products being offered to the public. The document, a [[key investor information document]] became a part of financial products regulation, over the immense and highly principled objections of the legal community, on the grounds that it is ''impossible'' to adequately explain the risks of a complicated legal product in fewer than the 80-100 pages it was presently taking. | ||
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The regulators replied, “well, if you can’t explain the big picture risks in a single page, the product can’t be suitable for the general public, can it?” | The regulators replied, “well, if you can’t explain the big picture risks in a single page, the product can’t be suitable for the general public, can it?” | ||
That our contracts must at some level, be able to be reduced to a fundamental essence isn’t just for gentle pensioners dandling grandchildren on their knees. The neurotic particularisation of risks that are, basically generic, feathers the nests of many subject matter experts. | That our contracts must at some level, be able to be reduced to a fundamental essence isn’t just for [[Ultimate client|gentle pensioners]] dandling grandchildren on their knees. The neurotic particularisation of risks that are, basically generic, feathers the nests of many subject matter experts. Even sophisticated financial institutions — ''especially'' sophisticated financial institutions — need to easily reduce their contracts to simple fundamental precepts, because that is how they risk manage them: there is no machine, and certainly no human being, in the bowels of an investment bank that is constantly reading its portfolio of {{isdama}}s to ensure every letter is complied with, every implicit buried option exploited. These contracts are reduced to a few key parameters: the tail risks are buried, filed away, to be dealt with by the legal eagles in the unpleasant event that they should arise.<ref>Come to think of it, it is a wonder there ''isn’t'' a squadron of waxen, hairless drones buried in some call centre in Bucharest rifling through that mountain of documents manually covering off that exact risk. It would make a great subplot for an [[Opco Boone]] adventure, in fact.</ref> | ||
This extra detail is, therefore heft: to the extent it confers optionality, it is optionality the organisation knows nothing about — the proverbial [[unknown known]] — or it is a put or call the organisation has sold that it is not managing in its books. We nod along and hope that, whatever happens it isn’t significant. | |||
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Revision as of 14:45, 13 March 2022
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Der Teufel mag im Detail stecken, aber Gott steckt in den Lücken![1]
It is a well-worn trope: there is so much one can commoditise, but the final mile is across ice-fields and shattered obsidian and you must walk it in the moccasins of deep expertise, lest you cut your feet to the bone. It may be true that 80 per cent of your bond documentation is boilerplate, but the rest — oof — is a monster.
Of course, the boilerplate is pretty monstrous, too.
On this commonplace is much of the magic circle’s patter premised: to give them credit, they are ably aided in it by their in-house clients, many of them refugees of the same brotherhood, and whose livelihoods are guaranteed by the same presumption.
If you make yourself really complicated, you can exclude virtually everyone.[2]
And, to be sure, should you peruse your average securitisation — here’s the prospectus for Multifamily Connecticut Avenue Securities Series 2019-01 Notes Due October 2049 — you will soon be reaching for the proverbial spoon, to scoop out your own eyes.
Some 25 years ago the European Commission hit upon the idea of requiring structured products manufacturers to produce a one-page summary of the key risks of financial products being offered to the public. The document, a key investor information document became a part of financial products regulation, over the immense and highly principled objections of the legal community, on the grounds that it is impossible to adequately explain the risks of a complicated legal product in fewer than the 80-100 pages it was presently taking.
The regulators replied, “well, if you can’t explain the big picture risks in a single page, the product can’t be suitable for the general public, can it?”
That our contracts must at some level, be able to be reduced to a fundamental essence isn’t just for gentle pensioners dandling grandchildren on their knees. The neurotic particularisation of risks that are, basically generic, feathers the nests of many subject matter experts. Even sophisticated financial institutions — especially sophisticated financial institutions — need to easily reduce their contracts to simple fundamental precepts, because that is how they risk manage them: there is no machine, and certainly no human being, in the bowels of an investment bank that is constantly reading its portfolio of ISDA Master Agreements to ensure every letter is complied with, every implicit buried option exploited. These contracts are reduced to a few key parameters: the tail risks are buried, filed away, to be dealt with by the legal eagles in the unpleasant event that they should arise.[3]
This extra detail is, therefore heft: to the extent it confers optionality, it is optionality the organisation knows nothing about — the proverbial unknown known — or it is a put or call the organisation has sold that it is not managing in its books. We nod along and hope that, whatever happens it isn’t significant.
See also
References
- ↑ “The Devil may be in the detail, but God is in the gaps.”
- ↑ With apologies to Daniel Dennett’s “if you make yourself really small, you can externalise virtually everything”.
- ↑ Come to think of it, it is a wonder there isn’t a squadron of waxen, hairless drones buried in some call centre in Bucharest rifling through that mountain of documents manually covering off that exact risk. It would make a great subplot for an Opco Boone adventure, in fact.