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Risk Management in the News

MF Global Rogue Trader Runs Up $141 Million Loss in Wheat Futures. The entry-order system that should have blocked the trades failed. (New York Times, 2/28/08) One report claimed the controls were turned off because they slowed down trading.

Credit Default Swap Market Is Next to Face Big Credit Test The notional value of credit default swaps is nearly 8 times the value of the underlying bonds. Banks that think their positions are hedged by a credit default swap may find they are not if the counterparty in the swap defaults. The identity of the counterparty is not always clear. (New York Times, 2/17/08)

Rogue Trader Circumvents Risk Controls and Runs Up $7.1 Billion in Losses for Société Générale “Aided by his in-depth knowledge of the control procedures resulting from his former employment in the middle office, he managed to conceal these positions through a scheme of elaborate fictitious transactions.” (New York Times, 1/24/08) Unwinding may have contributed to crash of European stocks Monday and Tuesday (New York Times, 1/25/08)

Guarantees Guaranteed to be Risky An investment vehicle issued in March 2007 with a AAA rating and paying LIBOR + 1% is now worth about 10 cents on the dollar. (New York Times, 11/30/07)

“I’d like to know what those damn things are worth,” Mr. Bernanke said in response to a question after his speech. (New York Times, 10/16/07)

"Maybe It’s Time to Restructure Executive Stock Options" Do stock options induce excessive risk-taking behavior by CEO's? (New York Times, 10/12/07)

"Looking for new profit opportunities? Join the 'risk revolution'" "Risk is again in the forefront of managers' minds, as renewed volatility in the financial markets has punctured early 2007's mood of complacency. Yet while risks from gyrating markets, record commodity prices and large corporate failures have captured the recent headlines, a revolution has quietly been taking place behind the scenes. (Toronto Globe and Mail, 10/8/07)