Thursday, March 15, 2012

The world...

...has woken up to the fact that the "risk-free" rate is certainly non "risk free". It was a vaccuous concept that only made sense in textbooks as a plug to obtain numbers for homework assignments (I was subjected to many, many of these "problem sets").

to quote Professor Berra:

In theory there is no difference between theory and practice. In practice there is.

From the WSJ:

Twenty-first century economists, financial actors and regulators blithely talked of the "risk-free debt" of governments, and European bank regulators set a zero-capital requirement on the debt of their governments. The manifold proof of their error is that banks and other investors are now taking huge credit losses on their Greek government bonds.

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