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The past 100 years have seen the birth of the credit rating business and the spread of credit ratings for applications in numerous borrowing and investment decisions, as well as for regulatory purposes in the United States and worldwide. Lire la première page
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All of the essays are excellent;however,the last essay by Herring is the best3 novembre 2008
Michael Emmett Brady
- Publié sur Amazon.com
This is an excellent book of collected essays .The various essays examine the rating agencies and the alleged,claimed,use of mathematically advanced ,quantitative risk management techniques that banks claimed they were using that could identify the different levels of risk that would result from the various different kinds of bonds available for purchase.This would bring into play differing levels of capital requirements and new ways of supposedly insuring against the risks of default.
The most inportant essay in the book is the last essay by Richard J Herring.In fact,the so called advanced, risk management models designed by economists and Subjective Expected Utility(SEU) Decision theory practioners of Bayesian probability theory only works against high frequency hazards with outcomes that have low severity.Risk management models "... are ill-equiped to deal with low frequency high severity events that are likely to be the next severe threat to financial stability... "(2002;p.345).The author makes it crystal clear that he is talking about the Keynes-Knight distinction between risk and uncertainty in Section 4 ,starting on p.353 of his article.THe banking industry is suffering from " disaster myopia ".This involves the belief that there is no such thing as uncertainty.Herring ties his analysis to a famous Keynes article, published in August, 1931 in the Evening Standard newspaper in England, that demonstrated the utter and complete failure of bankers and their economic advisors to recognize the nature of the worldwide threats emerging in the period 1930-31.Exactly the same thing is now occurring today.
One minor flaw in the paper is that Herring is unaware of the technical analysis Keynes had developed in his 1921 A Treatise on Probability book in chapters 6,15,17,20,22,and especially in sections 6,7, and 8 of chapter 26,that allowed one to deal with the problem of uncertainty in a technical manner.Instead,Herring attempts to find the answer in the work of Tversky-Kahneman.Keynes had provided a full technical account long before Tversky and Kahneman were born.
It is unfortunate that Volcker,Greenspan,Bernanke,and Paulson were not familiar with the issues raised by this book.They are repeating the same errors made by bankers in the very early 1930's by concentrating only on bailouts and massive injections of liquidity into the globsl financial system-it takes BOTH additional liquidity AND a renewal of CONFIDENCE in order to make a recovery possible.