Large Quake Hits Quants &
Prolonged Credit Market Correction Ahead
London, UK - 14 August 2007, 01:40 GMT
Dear ATCA Colleagues
[Please note that the views presented by individual contributors are not
necessarily representative of the views of ATCA, which is neutral. ATCA conducts
collective Socratic dialogue on global opportunities and threats.]
We are grateful to:
. The ATCA Editorial Team, based in Canary Wharf, London, UK, for "Large
Quake hits Quants as Computer-Driven Quantitative Hedge Funds Short-Circuit;"
. Dr Harald Malmgren, CEO, Malmgren Global, based in Washington, DC, USA for
"Prolonged Credit Market Correction Ahead;"
. Prof Dr Norbert Walter, Chief Economist, Deutsche Bank Group, based in Frankfurt,
Germany, for "Economic Consequences of The Sub-Prime
. Anthony Whitehouse based in Coppet and Geneva, Switzerland, for "Regulators,
Hedge Fund Lending and Cross-Selling;"
. The ATCA Editorial Team, based in Canary Wharf, London, UK, for "Perfect
Storm: Credit Freeze and Distress Selling by Hedge Funds;"
. Dr George Feiger, based in Berkeley, California, USA, for "Two
Faces of the Same Coin;"
. The ATCA Editorial Team, based in Canary Wharf, London, for "Contagion
and Systemic Risk? ECB Injects Record Euro 95bn post Major Disturbance;"
. The ATCA Editorial Team, for "Flight to Quality
as Markets finally Appreciate Risk;"
. Robert McNally, Chairman, London Chamber of Commerce Property and Construction
Group, for "Erosion of Commercial Real Estate
as a Solid Asset Class;"
. Alexander Hoare, CEO, C Hoare and Co, Private Bankers, based in the City
of London, for "Destructive
Creativity, Leverage and The Derivatives Market;" and
. Dr Harald Malmgren, CEO, Malmgren Global, based in Washington, DC, for "The
Fear of Central Bankers -- Flight from Illiquidity, Derivatives and Heightened
Risk of Contagion;"
in response to, "Are the Currency Markets Warning
that there is Trouble Ahead? The Precipitous Decline of the US Dollar and
its Impact on the World."
Dear DK and Colleagues
Re: Large Quake hits Quants as Computer-Driven Quantitative Hedge Funds Short-Circuit
Goldman Sachs Group, the biggest US investment bank by market value, is to
inject USD 2bn to bail out its Global Equity Opportunities (GEO) hedge fund
after the investment bank's computer models failed to predict last week's
market turbulence -- leading to losses of about USD 1.4bn, or more than 30
per cent of its value. GEO was hit by "significant market dislocation"
that has affected many funds using quantitative strategies according to Goldman.
Such funds rely on computer models to make market bets that attempt to exploit
differences in various securities. Goldman has also raised USD 1bn for the
USD 3.6bn GEO fund from a group of other investors: including Hank Greenberg
of C V Starr & Co, the former Chairman of American International Group
(AIG); Richard Perry of Perry Capital, the former Goldman trader; and Eli
Broad, the US billionaire.
ATCA Editorial Team
Dr Harald Malmgren is Chief Executive of Malmgren Global and also currently
the Chairman of the Cordell Hull Institute in Washington, DC, a private, not-for-profit
"think tank" which he co-founded with Lawrence Eagleburger, former
US Secretary of State. He is an internationally recognised expert on world
trade and investment flows who has worked for four US Presidents. His extensive
personal global network among governments, central banks, financial institutions,
and corporations provides a highly informed basis for his assessments of global
markets. At Yale University, he was a Scholar of the House and Research Assistant
to Nobel Laureate Thomas Schelling, graduating BA summa cum laude in 1957.
At Oxford University, he studied under Nobel Laureate Sir John Hicks, and
wrote several widely referenced scholarly articles while earning a DPhil in
Economics in 1961. His theoretical works on information theory and business
organization have continued to be cited by academics over the last 45 years.
After Oxford, he began his academic career in the Galen Stone Chair in Mathematical
Economics at Cornell University. He writes:
Dear DK and Colleagues
Re: Prolonged Credit Market Correction Ahead
ATCA's Editorial Team has characterized this summer's financial market tumult
as "a perfect storm." Certainly what we are experiencing does seem
like one of those most improbable events in which everything that can go wrong
is going wrong, and all at the same time.
Dr Harald Malmgren commenced his career in government service under President
John F Kennedy, working with the Pentagon in revamping the Defense Department's
military and procurement strategies. When President Lyndon B Johnson took
office, Dr Malmgren was asked to join the newly organised office of the US
Trade Representative in the President's staff, where he had broad negotiating
responsibility as the first Assistant US Trade Representative. He left government
service in 1969, to direct research at the Overseas Development Council, and
to act as trade adviser to the US Senate Finance Committee. At that time,
he authored International Economic Peacekeeping, which many trade experts
believe provided the blueprint for global trade liberalisation in the Tokyo
Round of the 1970s and the Uruguay Round of the 1980s. In 1971-72 he also
served as principal adviser to the OECD Wise Men's Group on opening world
markets, under the chairmanship of Jean Rey, and he served as a senior adviser
to President Richard M Nixon on foreign economic policies. President Nixon
then appointed him to be the principal Deputy US Trade Representative, with
the rank of Ambassador. In this role he served Presidents Nixon and Ford as
the American government's chief trade negotiator in dealing with all nations.
While in USTR, he became known in Congress as the father of "fast track"
trade negotiating authority, which he first introduced into the historically
innovative Trade Act of 1974. He was the first official of any government
to call for global negotiations on liberalisation of financial services, and
he was the first US official to call for the establishment of an Asian-Pacific
Economic Cooperation arrangement, known in more recent years as APEC.
In 1975 Dr Malmgren left government service, and was appointed Woodrow Wilson
Fellow at the Smithsonian Institution. From the late 1970s he managed an international
consulting business, providing advice to many corporations, banks, investment
banks, and asset management institutions, as well as to Finance Ministers
and Prime Ministers of many governments on financial markets, trade, and currencies.
He has also been an adviser to subsequent US Presidents, as well as to a number
of prominent American politicians of both parties. Over the years, he has
continued writing many publications both in economic theory and in public
policy and markets.
We look forward to your further thoughts, observations and views. Thank
For and on behalf of DK Matai, Chairman, Asymmetric Threats Contingency
ATCA: The Asymmetric Threats Contingency
Alliance is a philanthropic expert initiative founded in 2001
to resolve complex global challenges through collective Socratic
dialogue and joint executive action to build a wisdom based global
economy. Adhering to the doctrine of non-violence, ATCA addresses
asymmetric threats and social opportunities arising from climate
chaos and the environment; radical poverty and microfinance; geo-politics
and energy; organised crime & extremism; advanced technologies
-- bio, info, nano, robo & AI; demographic skews and resource
shortages; pandemics; financial systems and systemic risk; as
well as transhumanism and ethics. Present membership of ATCA is
by invitation only and has over 5,000 distinguished members from
over 120 countries: including 1,000 Parliamentarians; 1,500 Chairmen
and CEOs of corporations; 1,000 Heads of NGOs; 750 Directors at
Academic Centres of Excellence; 500 Inventors and Original thinkers;
as well as 250 Editors-in-Chief of major media.
The views presented by individual contributors are not necessarily
representative of the views of ATCA, which is neutral. Please
do not forward or use the material circulated without permission
and full attribution.
Intelligence Unit | mi2g | tel +44 (0) 20 7712 1782 fax +44
(0) 20 7712 1501 | internet www.mi2g.net
mi2g: Winner of the Queen's Award for Enterprise in the category