The Elegance of Frugality and Risk

Preface to “A New Theory of Risk and Rating” by Giulio Sapelli. The Elegance of Frugality and Risk. From a theoretical standpoint, risk is confronted in the very same way in which human interests and activities deploy and manifest themselves at given levels of self-organization. In fact, there cannot exist an objectivistic and deterministic theory…

Financial Stability Board – Moving Away From CRA Ratings

It its may 12-th, 2014 final Peer  Review Report (download) the Financial Stability Board speaks of “reducing Reliance on CRA Ratings”. According to the FSB: “The key challenge lies in developing alternative standards of creditworthiness and processes so that CRA ratings are not the sole input to credit risk assessment.” As we have repeatedly pointed…

Why Regulating Ratings Won’t Fix the Problem

Much has been written about the global economic crisis, its causes and its consequences. We could say that to a large extent we actually understand what has happened and why. The point, however, is to look to the future and to learn from past mistakes. In particular, we would all like to understand how to…

Probability of Default Versus the Principle of Incompatibility

In circumstances characterized by high turbulence and interdependency: it is impossible to make predictions – in fact, even the current economic crisis (of planetary proportions) has not been forecast only very rough estimates can be attempted there is no such thing as precision it is impossible to isolate “cause-effect” statements as everything is linked optimization…