Tito's Blog

Herd Behaviour in Financial Markets and Model Agencies

Great parallel between financial market and the modeling world on social / behavioral similarities: how supermodels are like toxic assets

In the face of complex decisions in a highly uncertain environment, modeling agency clients (and financial investors) pick what everybody else is choosing, triggering the social-induced feedback loop (“Matthew effect” or “the rich get richer”).

Economist and FT on Private Deleverage vs Public Borrowing

Martin Wolf explains why extra government borrowing will be met by increased private (mostly corporate) savings, à-la Japanese lost decade. In general it makes a lot of sense, even though it makes two strong assumptions:

1. the somewhat paradoxical net flow of capital from developing to mature countries via reserve accumulation and currency manipulation will continue indefinitely
2. dollars and pounds will still be considered a safe heaven

On private corporation deleverage, The Economist has a good article on this week print edition (“Show us the money”) on increased cash generation by US and UK companies, due to lower investments.