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Future of Basis Capital remains in doubt

Discussion in 'Managed Funds & Index Funds' started by Simon Hampel, 23rd Jul, 2007.

  1. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
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    Location:
    Sydney, Australia
    Lateline Business - 19/07/2007: Future of Basis Capital remains in doubt

    http://www.abc.net.au/reslib/200707/r161558_592482.asx
     
    Last edited: 17th Sep, 2016
  2. Tropo

    Tropo Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    3,394
    Location:
    NSW
    "Trading will never be mastered by engineering and profitable trades will never be erected with the speed and efficiency of skyscrapers in Shanghai.
    If that were possible, Goldman Sachs, Merrill Lynch and all the other major players in global finance would have long ago eliminated all the risk out of their trading operations and would have minted profits the way that McDonalds manufactures hamburgers.
    But as we’ve seen this week in the case of Bear Stearns whose CDO hedge funds lost all of their capital such is not the case.

    In fact McDonalds and Merrill Lynch serve as good examples to better understand the difference between trading and all other business activities. There is almost no reasonable scenario (short of nuclear Armageddon) under which we can imagine McDonalds losing 10 Billion dollars in one day.
    Their model is the essence of precision, efficiency and repeatability that is constructed on natural laws of physics.

    On the other hand it is quite easy to imagine ML losing $10 Billion dollars in a day if the Dow dives 2,000 points in a matter of few hours.
    Furthermore it is not at all inconceivable that such an event could occur once every decade or so.
    That’s because trading is not based on a rock solid laws of nature, but rather on the ever shifting whims of man."
    ;)