Their mathematics were used in the invention of collateralized debt obligations (CDOs), a variant of structured asset-backed security (ABS) collateralized by debt obligations including bonds and loans. IMF's former chief economist Raghuram Rajan warned that asset-backed securities and other derivatives spread risk and uncertainty more widely, rather than reduce risk through diversification as was the purported intention. We witnessed the contribution in the financial meltdown.
We don't know the full mathematics behind the Olam International rights issue, a complex structured deal involving bonds, warrants and shares. By one "tricky estimate", the warrants become valuable only if Olam shares trade above $1.575. Don't miss the line that says Olam shares continued to flounder, falling 5.31 percent to $1.515 yesterday.
And then there's the sequence of events behind the Temasek's show of support and confidence in the beleaguered company. According to chief executive Sunny Verghese, it was the company's banks that went to Temasek to propose the rights deal. Temasek then approached Olam. That was on Monday. The latest variant has it that it was Olam which had instructed one of its banks to go to Temasek to discuss the investment deal. So were the banks not on talking terms with Olam in the first place, or was Temasek not on talking terms? Asking for money is such a delicate subject, especially when the CEO claims he has more than $10 billion in liquidity.
Educated friends who lost money on the Lehman mini-bonds said they didn't understand the financial gobbledygook, it was the 5 percent promised returns that sucked them in. Warren Buffett's long-time partner, Berkshire vice chairman Charlie Munger, has choice words for lax or dysfunctional government regulations, comparing the relationship between banks and regulators to that between a tiger and a tiger keeper, "When the tiger gets out and starts creating damage, it's insane to blame the tiger, it's the idiot tiger keeper."