John At The Center

An analysis by research firm Thetica Systems, commissioned by ProPublica, shows that in the last years of the boom, CDOs had become the dominant purchaser of key, risky parts of other CDOs, largely replacing real investors like pension funds. By 2007, 67 percent of those slices were bought by other CDOs, up from 36 percent just three years earlier. The banks often orchestrated these purchases. In the last two years of the boom, nearly half of all CDOs sponsored by market leader Merrill Lynch bought significant portions of other Merrill CDOs [3].

via Banks’ Self-Dealing Super-Charged Financial Crisis – ProPublica.

As the head of Merrill’s CDO business, Ricciardi also wooed managers with golf outings and dinners. One Merrill executive summed up the overall arrangement: “I’m going to make you rich. You just have to be my bitch.”

But not all managers went for it.

An executive from Trainer Wortham, a CDO manager, recalls a 2005 conversation with Ricciardi. “I wasn’t going to buy other CDOs. Chris said: ‘You don’t get it. You have got to buy other guys’ CDOs to get your deal done. That’s how it works.’” When the manager refused, Ricciardi told him, “‘That’s it. You are not going to get another deal done.’” Trainer Wortham largely withdrew from the market, concerned about the practice and the overheated prices for CDOs.

via Banks’ Self-Dealing Super-Charged Financial Crisis – ProPublica.

Currently, B-Dark lets users see into the 15 dark pools Bloomberg is connected to directly. This provides a view into more than 90 percent of dark liquidity across the industry, according to Raymond Tierney, chief executive and president of Bloomberg Tradebook. More important, visibility into alternative trading systems gives the buyside the information they’d need to re-route their orders if they’re not finding sufficient liquidity in a particular dark pool.

“They don’t find out at the end of the day that they made a bad decision with an algo choice; they can find out in real time that they need to make adjustments,” Tierney said. “And the more information that buyside clients can get around in real time, on demand around the venues that they’re engaged with, the better they will be in understanding how to manage and re-distribute their liquidity.”

via Bloomberg Algo Shines Light into Dark Pools.

Even after the broad market rebounded strongly in 2009, many quant funds continued to struggle. This time, a central problem was momentum models, which didn’t steer quants into economically sensitive stocks in time to catch their powerful rally.

By that time, many investors had lost faith. Harvey Rowen, chief executive and chief investment officer at Starmont Asset Management LLC, in mid-2009 dumped a couple of quant funds from client portfolios that were trailing the market. He now allocates roughly 4% of client portfolios to quant funds, down from about 12% previously. One concern is that some quant models are based on a rather stagnant view of the world, “and when the world changes, the computer doesn’t know that,” Mr. Rowen says.

via Computer-Driven “Quant” Funds Seek To Become More Human – WSJ.com.

The reason the Keynesian model is finding new life is that it specifically built to answer the questions that are important at the moment. The theorists who built modern macro models, those largely in control of where the profession has spent its effort in recent decades,; did not even envision that this could happen, let alone build it into their models. Markets work, they don’t break down, so why waste time thinking about those possibilities.

via Economist’s View: The Great Depression in Economic Memory.

BankSimple, a new type of technology-focused, online-only banking startup cofounded by an early Twitter employee, has just completed a round of venture funding, SAI has learned.

via EXCLUSIVE: Early Twitter Employee Alex Payne’s Online Bank Startup, BankSimple, Raises A Big Round.

In truth, people will only start to have real faith in Korean corporate responsibility when convicted bosses do their full jail terms and then stay out of corporate life. Shareholders could even be allowed to decide on the most suitable successor – and pick one from another family.

via The Korea discount: blame the businessmen | beyondbrics | FT.com.

And if your business model is based on managing domestic mutual funds and getting a steady flow of new investments, you’re not going to find life easy going forwards.

via Equities: The shift from active to passive | Analysis & Opinion |.

StealthModeWatch.com provides an API for finding and aggregating the Form D data programmatically, using filters and search syntax not available at the SEC’s web site.

This current beta release provides free (but limited) access to the Form D filing data.

We built it originally for our own venture research, but are happy to share it with other entrepreneurs, financiers, journalists, and other researchers.

via About – StealthModeWatch.com.

Infinium used an algorithm to execute a “lead/lag” strategy to exploit any miniscule arbitrage opportunities between United States Oil Fund, a well known exchange traded fund that tracks the price of oil, and West Texas Intermediate, the benchmark US crude oil future.

On February 3 of this year with less than four minutes to go before Nymex closed floor trading for the day, Infinium turned on its new computer programme, which immediately started buying oil futures uncontrollably.

The algorithm managed to place 4,612 buy orders before it was was shut down five seconds later. The company then sent large offsetting sell orders but was left nursing a loss of $1.03m.

Infinium’s burst of buying and selling represented about 4 per cent the trading volume of the contract that day and caused a brief 1.3 per cent jump in the oil price.

via FTfm » Alchemy » High Frequency Trading and ETFs.