Borges, Babel and the race against the machine

8 April 2015Comment, Technologyeconomics, fiction, innovation, MathematicsNick Dunbar

In a world of information, the way we measure combinations of words or ideas is important. Some people say it might even save humanity. Last year, economists Eric Brynolfsson and Andrew McAfee suggested that increasing combinations of business ideas could save us from being supplanted by intelligent machines. Like any powerful algorithm, combinatorics is both…

The Imitation Game and The Interview

23 December 2014Commentcryptography, cyber security, Enigma, The Imitation Game, World War IINick Dunbar

I saw The Imitation Game last week "“ the biopic of Alan Turing "“ and it prompted me to write something about Jack Good, one of the Bletchley park codebreakers depicted in the movie. In April 2003, while researching my unpublished probability book, I visited him in Blacksburg, Virginia. I was in New York on…

Quantitative Easing, Interest-Rate Derivatives: A Toxic Combination

17 May 2013Banks, Commentderivatives, interest rate risk, litigation, municipal finance, RBSNick Dunbar

Quantitative easing has resulted in collateral damage. Municipalities, public-owned entities and small companies have been damaged as a result of derivatives contracts that locked them into paying high interest rates before the full effect of QE became apparent. Investment banks that sold such contracts have been accused of mis-selling them, lawsuits are winding their way…

The Higgs boson and me

18 July 2012CommentNick Dunbar, physicsNick Dunbar

I first encountered the Higgs boson in 1989 on a blackboard in an advanced quantum field theory class for graduate students at Harvard University. It was the point that I realized that the life of a theoretical physicist was not for me. I remember the lecture theatre well. There were three blackboards side by side,…

Goldman, Greece and a troubling tango

1 March 2010Articles, Comment, Risky Financeeurozone, Goldman Sachs, Greece, Risky FinanceNick Dunbar

Risky Finance 18 February 2010 Six-and-a-half years ago, Goldman Sachs found itself reading about a huge derivatives transaction that was meant to have been kept top secret. The story, which I published in Risk magazine in July 2003, detailed how the bank had used giant customised swap transactions to help Greece's public debt management agency…

Barclays CDOs in Ruritania

31 July 2009Articles, Comment, Risky FinanceBarclays, CDOs, CRSM, Italy, Risky FinanceNick Dunbar

With its plume-helmeted soldiers and a ban on outsiders marrying elderly citizens for money, there is something of a comic opera quality about San Marino, the micro-state located on a hilltop near the Italian town of Rimini. Yet for Italian authorities, there is nothing comic about San Marino, whose website proudly talks up the principality’s banks as being beyond the reach of jealous Italian taxmen.

Last week, the Italian authorities struck back. Prosecutors in Bologna arrested the chairman, chief executive and other senior management of San Marino’s biggest bank, CRSM. Meanwhile, the Bank of Italy seized control of CRSM’s Bologna-based subsidiary Delta, which is one of Italy’s top dozen consumer finance companies.

While the Bank of Italy press release accompanying the seizure talks about flaws in San Marino’s money laundering controls, the ostensible reason for taking control of Delta was that CRSM had used hidden stakes to enjoy 100 percent ownership of Delta – which the Bank of Italy had expressly forbidden in the light of its money laundering concerns.

However, what the Bank of Italy release did not mention was how CRSM obtained financing for Delta’s â‚¬4.5 billion balance sheet, which grew sixfold between 2003 and 2007. An ongoing dispute in London’s High Court has shed light on how credit derivatives were used to achieve this, out of sight of the Italian and San Marino regulators, with about â‚¬700 million of the financing provided by Barclays Capital.

Corporate Nannies

12 February 2009Articles, Comment, Risky FinanceBarclays Capital, CDOs, complex derivatives, HSH Nordbank, Massimo Catasta, Poste Italiane, Risky FinanceNick Dunbar

Risky Finance Do investment banks owe a duty of care to their corporate customers---in a similar way that they do to widows and orphans? Or should the principle of "caveat emptor" remain sacrosanct? The issue is central to two lawsuits recently filed in London. In one, an Italian company lost its shirt after buying an…

Weapons of mass deception

12 February 2009Articles, Comment, Risky Financederivatives, Italy, Life and Pensions magazine, Munich Re, Risky FinanceNick Dunbar

Risky Finance 22 November 2006 A rash of derivatives scandals a decade ago led to the tightening up of accounting rules for companies. But sadly not the same has been true of government accounting rules, at least in continental Europe. Both central governments and local authorities alike have become heavy derivatives users. This generates enormous…

The mystique of structured products

12 February 2009Articles, Comment, Risky FinanceFSA, Greece, JP Morgan, pension funds, Risky FinanceNick Dunbar

Risky Finance 17 May 2007 The session of the Greek parliament on 3rd May was an especially stormy one. A few days earlier, the minister for employment had been forced to resign, and the socialist opposition smelled blood. Why, clamoured the socialist MPs, had the finance ministry hired JP Morgan to package loans linked to…

From spooks to quants

12 February 2009Articles, Comment, Risky FinanceGCHQ, Jim Simons, Renaissance Technologies, Risky FinanceNick Dunbar

Risky Finance 23 August 2007 The British cryptanalysts at Bletchley Park and at its postwar successor GCHQ would often face a dilemma. Their secret code-breaking techniques were sometimes fabulously successful, allowing decisions of critical military or policy importance to be made almost in real time. But being too obvious about this success would alert the…