Tuesday, May 19, 2009

Capital requirements for dummies:
Here's a simple numerical example: $100 mortgage pool. Before it is carved up, the risk weight is 50 percent, and the capital requirement is 8 percent, so the bank needs to hold $4 in capital.

After it is carved up, the $5 junior tranche gets a 100 percent risk weight, but it is for face value only, so the capital requirement is $0.40. The $95 senior tranche gets a 20 percent risk weight, so the capital requirement is $95 * .08 * 0.2 = $1.52. If the bank holds both pieces, it is obviously taking the same risk, but for $1.92 in capital requirements. If it sells the senior tranche to a European bank, then the American bank is taking most of the same risk for only $0.40 in capital.

Thursday, May 07, 2009

This is very clever. "Digestion and metabolic activity affects tissue conductance, and this can be detected via appropriate sensors worn on the skin." Hence, a small patch can estimate daily net caloric gain/loss.
George McGovern opposes the "Employee Free Choice Act."
Last year, I wrote on these pages that I was opposed to this bill because it would eliminate secret ballots in union organizing elections. However, the bill has an additional feature that isn't often mentioned but that is just as troublesome -- compulsory arbitration.

This feature would give the government the power to step into labor disputes where employers and labor leaders cannot reach an agreement and compel both sides to accept a contract. Compulsory arbitration is bound to trigger the law of unintended consequences.