Jamesian Philosophy Refreshed

This is big news, both in the world of finance and in that of, well  ... Islamic theology. In May of this year, [I'm sorry I'm late to this table] a company headquartered in the United Arab Emirates, Dana Gas, declared that $700 million of its sukuk bonds were, simply, invalid. It obtained a preliminary injunction against creditor enforcement. That may have been an opening negotiation ploy in a sense -- Dana coupled this announcement with an exchange offer, proposing to give its creditors new bonds for the old, with a haircut of more than half the value of the old. Jason Kilborn calls this an "existential crisis" for the whole field of Islamic finance, or Shariah-compliant finance, of which these bonds were an example. Does Dana Gas propose to change the rules -- rules that supposedly represent God's will, by its own sayso? Well, no. Not exactly. But kinda. Here is Kilborn's take: http://www.creditslips.org/creditslips/2017/06/dana-gas-and-an-exist...

Whenever I order coffee from a restaurant, I order Splenda, or "the yellow one" if the proper name for it doesn't come to mind. There's no particular reason for this. I know there's also a blue one and a pink one, and the newest entrant is a green one. I don't remember why I started using the one that I do, doubt it was rational or evidence-based, and have no confidence that I could pick the Splenda-sweetened coffee from alternatives by taste alone. But it is useful I think to have a default option, and so long as there is no reason to adopt either of the others, I'll stick with my default. What percentage of our choices are default choices, made on no better basis than my invocation of Splenda at such moments? Hmmmm.

Argentina held an election on Sunday, August 11th. The election was called a "congressional primary," but the term doesn't seem to suggest down there what it would mean in the US. Here, such language would suggest votes by which the contending parties decide their nominees for Congressional campaigns. I'm not sure what exactly it means there, but ... the point, the reason for my interest in the vote, is that the "congressional primary" serves as a midterm popularity check for President Cristina Fernandez (portrayed above). Reuters, by the way, simply calls her Fernandez, and I'm following their style here. By Argentina naming conventions, she's also known as Fernandez de Kirchner, the "de Kirchner" a reference to her marriage to her precursor in the office, Nestor Kirchner (who left office in 2007 and left this vale of tears in 2010). She and her party didn't do well. Her coalition received only 25% of the vote. Bad news fo...

  Financial institutions have “risk managers,” whose job is, in essence, to worry about such matters as we’ve been discussing. A risk manager assesses the risk to an institution’s portfolio or portfolios, assigns the appropriate number, and (to the extent his organization allows) does generally try to mitigate it. Speaking a bit roughly, there are four things to do about any given risk: avoid it, mitigate it, transfer it, retain it. If a risk manager persuades his superiors that a particular proposed merger comes with a lot of risk, because a “due diligence” review shows the potential target company has a lot of off-balance-sheet liabilities, then he may scuttle the merger entirely. Mission accomplished. If he can’t scuttle the merger, he can at least suggest ways in which the risks of the merger may be reduced, by for example making it a condition of any deal that the target entity spin off its more troublesome subsidiaries first. When it can be neither avoided nor re...

Picking up a discussion we had been engaging in of late about the types of risk faced (and, one must hope, managed) by financial institutions....   Default risk is the risk that some counterparty with which the risk manager’s own concern is doing business, and from whom they are receiving contracted-for payments, will stop making those payments. They might stop payment either with malice aforethought (as with crooks who take your valuables, promise you a series of payments, and then skip town), or they may stop payment due to some financial crisis that leaves them incapable of doing so. In other words, your own liquidity risk as defined above is somebody else’s default risk. Interest-rate risk is the risk that a change in interest rates will undermine the value of an entity’s assets. For example: on any given day there is some risk that a central bank’s decision to increase interest rates will hurt the value of stocks (because it makes lending money relatively more attra...

Felix Salmon plays with toys in order to explain the status of the holdout bondholder's litigation against Argentina. This is about as funny as a discussion of sovereign bond defaults can get. http://blogs.reuters.com/felix-salmon/2012/12/02/elliott-vs-argentina-the-lego-version/ How could I add anything?