logging in or signing up Too Big to Fail kongtcheu Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINTLite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: (To copy code, click on the text box) Embed: URL: Thumbnail: WordPress Embed Customize Embed The presentation is successfully added In Your Favorites. Views: 1683 Category: Business & Fin.. License: All Rights Reserved Like it (0) Dislike it (0) Added: April 22, 2009 This Presentation is Public Favorites: 0 Presentation Description How Trading Institutions Become Too Big to Fail. Explaining How Financial Trading Institutions Become too Big, the factors and incentives that lead them to take excess risks, the illusions that blind, ultimately leading to catastrophic failure. Comments Posting comment... Premium member Presentation Transcript Too Big to Fail! : Too Big to Fail! How do they happen? The Process By Which Large Financial Conglomerates Emerge & How They Suddenly Become Insolvent Phil Kongtcheu Three Main Factors : Three Main Factors Clustering Effects Information Asymmetries Blind Greed Incentives Clustering Effects : Clustering Effects How They Become Too BIG Clustering/Snowballing Effects : Clustering/Snowballing Effects A Marginal Original Size Edge Attracts the Largest Deals (Operational + M&A ) Snowballing : Snowballing At every subsequent transactional step, more parties seek to transact with the better counterparties commensurately with size, further increasing their attractiveness by further growing their balance sheet size… Monopolistic / Oligopolistic Players Emerge : Monopolistic / Oligopolistic Players Emerge Ultimately a mere few establish themselves as counterparty of reference on virtually all trades Clustering phenomenon /Snowballing Effect known in other fields among many others as Segregation Models Dynamics ( Search: Models of Segregation Thomas C. Schelling ) or Gresham / Reverse Gresham Preference Laws Information Asymmetries : Information Asymmetries How Blindness Occur Normally, liabilities growth should be proportional to assets growth Information Asymmetries : Information Asymmetries However AIG type party shoulder on undetected risks that generate imbalances due to pricing complexities Furthermore, the temporary possibility of 2-timings and n- timings arbitrage opportunities lower the urge to bring clarity to transactional processes. What is 2-Timings Or n-Timings Credit Arbitrage? : What is 2-Timings Or n-Timings Credit Arbitrage? It is Created by Latent Information Asymmetries Can be repeated to n>2 unspecified counterparties of A Counterparty A A receives credit from B A receives credit from C Counterparty B B grants credit to A B does not know A received credit from C Counterparty C C grants credit to A C does not know A received credit from B The Wrong Greed Incentives : The Wrong Greed Incentives Short Term Cash Flow Inflows Misconstrued as Real Profit Colluding Factors Amplify Imbalances : Colluding Factors Amplify Imbalances With size comes the appearance of success and even easier access to cheap money Cheaper money creates an incentive to add even more leverage to generate even more profits More leverage further amplify imbalances By the time the full picture comes to clear view, the whole system is on the brink of collapse : By the time the full picture comes to clear view, the whole system is on the brink of collapse Too Big to Fail! Bailout! Recent Examples : Recent Examples ….Credit Lyonnais LTCM Enron AIG CitiGroup… How To Prevent Recurrence? : How To Prevent Recurrence? See Our Next Presentation Titled: “Unity of Purpose” Slide 15: Thank You 4 Watching! Phil Kongtcheu a.k.a. Obi-Wan Yoda Visit my blog at http://kongtcheu.blogspot.com You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.
Too Big to Fail kongtcheu Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINTLite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: (To copy code, click on the text box) Embed: URL: Thumbnail: WordPress Embed Customize Embed The presentation is successfully added In Your Favorites. Views: 1683 Category: Business & Fin.. License: All Rights Reserved Like it (0) Dislike it (0) Added: April 22, 2009 This Presentation is Public Favorites: 0 Presentation Description How Trading Institutions Become Too Big to Fail. Explaining How Financial Trading Institutions Become too Big, the factors and incentives that lead them to take excess risks, the illusions that blind, ultimately leading to catastrophic failure. Comments Posting comment... Premium member Presentation Transcript Too Big to Fail! : Too Big to Fail! How do they happen? The Process By Which Large Financial Conglomerates Emerge & How They Suddenly Become Insolvent Phil Kongtcheu Three Main Factors : Three Main Factors Clustering Effects Information Asymmetries Blind Greed Incentives Clustering Effects : Clustering Effects How They Become Too BIG Clustering/Snowballing Effects : Clustering/Snowballing Effects A Marginal Original Size Edge Attracts the Largest Deals (Operational + M&A ) Snowballing : Snowballing At every subsequent transactional step, more parties seek to transact with the better counterparties commensurately with size, further increasing their attractiveness by further growing their balance sheet size… Monopolistic / Oligopolistic Players Emerge : Monopolistic / Oligopolistic Players Emerge Ultimately a mere few establish themselves as counterparty of reference on virtually all trades Clustering phenomenon /Snowballing Effect known in other fields among many others as Segregation Models Dynamics ( Search: Models of Segregation Thomas C. Schelling ) or Gresham / Reverse Gresham Preference Laws Information Asymmetries : Information Asymmetries How Blindness Occur Normally, liabilities growth should be proportional to assets growth Information Asymmetries : Information Asymmetries However AIG type party shoulder on undetected risks that generate imbalances due to pricing complexities Furthermore, the temporary possibility of 2-timings and n- timings arbitrage opportunities lower the urge to bring clarity to transactional processes. What is 2-Timings Or n-Timings Credit Arbitrage? : What is 2-Timings Or n-Timings Credit Arbitrage? It is Created by Latent Information Asymmetries Can be repeated to n>2 unspecified counterparties of A Counterparty A A receives credit from B A receives credit from C Counterparty B B grants credit to A B does not know A received credit from C Counterparty C C grants credit to A C does not know A received credit from B The Wrong Greed Incentives : The Wrong Greed Incentives Short Term Cash Flow Inflows Misconstrued as Real Profit Colluding Factors Amplify Imbalances : Colluding Factors Amplify Imbalances With size comes the appearance of success and even easier access to cheap money Cheaper money creates an incentive to add even more leverage to generate even more profits More leverage further amplify imbalances By the time the full picture comes to clear view, the whole system is on the brink of collapse : By the time the full picture comes to clear view, the whole system is on the brink of collapse Too Big to Fail! Bailout! Recent Examples : Recent Examples ….Credit Lyonnais LTCM Enron AIG CitiGroup… How To Prevent Recurrence? : How To Prevent Recurrence? See Our Next Presentation Titled: “Unity of Purpose” Slide 15: Thank You 4 Watching! Phil Kongtcheu a.k.a. Obi-Wan Yoda Visit my blog at http://kongtcheu.blogspot.com