Proof I’m a personal finance geek: the recent French Aviva story

I have been told by many over the years that I have an abnormally calm demeanour – very few things make me go nuts, or even make the outward manifestation of an exclamation point.

HOWEVER: this story, narrated by Matt Levine at Bloomberg, really made me excited and giddy; with big laughs, scoffs, etc.  The fact it’s about financial innovation gone horribly wrong probably helps prove the point (if any more proof were needed) that I am, indeed, a personal finance geek.

Let this be a lesson to us all: read the fine print.  Sometimes the institution messed up in your favour.


Levine on cunning financial engineering: when synthetic becomes real

I think I’ve mentioned before that I’m a big fan of Matt Levine over at Bloomberg View.  He’s experienced and geeky enough to make comments like the following: a certain debt refinance deal, involving transferring CDS premium from sellers to the defaulted entity, is ‘…objectively beautiful.’  Who says modern media must pander to the lowest common denominator?

Anyway, Levine’s latest article excited both my financial geekiness (I agree with this ‘beautiful’ statement) and more real-world geekiness (I frequented RadioShack in my youth, and actually did buy circuit board parts from the back).

One of the key points of the article speaks about how synthetic/esoteric derivatives (such as CDS) can influence ‘real’ markets (such as company loans, keeping the company afloat).  With this week’s quadruple-witching, whereby pretty much all futures/options series make a roll, it’s always worth asking whether the huge swings we’ve witnessed are

  • ‘Real’, in terms of folks actually showing dramatically shifting risk tolerance; or
  • ‘Synthetic’, in terms of the biggest derivatives houses using this roll period to ensure their exposure is minimised (which, in theory, can be done by manipulating – not necessarily illegally! – ‘real’ underlying markets).