Old and new wisdom in finance
Given the date, I thought you’d all enjoy this refresher course in modern finance from Peter Sinclair, Professor of Economics at the University of Birmingham (as recommended by Willem Buiter, otherwise known as Financial Times blogger Maverecon).
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Traditional |
2003 - August 2007 |
Now |
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The First Law of Credit Markets: You can borrow… |
if you can prove you don’t need to |
anything |
just possibly – if you are seen as a sound bank, that is |
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Uncovered Interest Parity: |
May well hold, in time, on average |
RIP |
Reports of some new sightings |
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Aggregate value of assets x and y |
= x+y |
≥ Max{2x, 2y} |
≤ Min{2x,2y} |
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Expected payoff from a financier’s gamble |
Negative without inside information |
Often positive, and with positive serial correlation |
If I’m a bank, heads I win, tails the taxpayer loses |
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Solvency is…. |
terrain that you must never leave |
an issue strictly for the nerds |
in the eye of the beholder |
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The first law of prices is.… |
there’s nothing for nothing |
what’s dear today may be quite cheap: watch it rise further |
come back to our website when it has been rebuilt |
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Risk is … |
sold to those best able to bear it |
effectively traded away to nothing |
sold to those who understand it least |
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