Comments for The Schulzke Brief http://schulzkelaw.com Legal, negotiation and tax counsel for business Thu, 20 Nov 2008 10:58:51 +0000 http://wordpress.org/?v=2.6.3 Comment on FASB: SocGen’s Kerviel accounting was right? by Floyd Norris http://schulzkelaw.com/fasb-socgens-kerviel-accounting-was-right/#comment-80 Floyd Norris Fri, 11 Jul 2008 06:15:56 +0000 http://schulzkelaw.com/?p=71#comment-80 I have not studied the draft. But by saying a company can put such losses in proforma statements, is not the FASB saying not to put them on the regular statements. Had SocGen done that, I would have had no complaint. By the way, did you notice that SocGen has restated to show that Kerviel made money in some quarters? I have not studied the draft. But by saying a company can put such losses in proforma statements, is not the FASB saying not to put them on the regular statements. Had SocGen done that, I would have had no complaint.
By the way, did you notice that SocGen has restated to show that Kerviel made money in some quarters?

]]> Comment on Lessons from Bear Stearns indictments? Don’t trust anybody or anything. by Old Atlantic http://schulzkelaw.com/lessons-from-bear-stearns-indictments-dont-trust-anybody-or-anything/#comment-66 Old Atlantic Sat, 21 Jun 2008 19:47:05 +0000 http://schulzkelaw.com/?p=64#comment-66 Everyone in this case couldn't pass an exam on what hedged means. When someone says hedged without qualification, it means delta hedged, i.e. against market level. Funds sells call options on SPX and buys SPX so its delta neutral. They say they are hedged. That's standard speak. Are they hedged against volatility? No. You can say its hedged and 5 seconds later says its not hedged against volatility. Its not a contradiction, because when you say its hedged w/o saying specifically against what, it means against market level but doesn't include volatility hedged. http://en.wikipedia.org/wiki/The_Greeks Q: Are you hedged. A: Yes. (only means delta hedged) Q: Are you vega hedged? A: No. Q: Are you delta hedged. A: Yes. Hedged can mean hedged against some variable or parameter indicated by context or by prior discussion or understanding. If someone says hedged to customers, he is not speaking about being vega hedged. How many customers know what vega is? Can these prosecutors pass a test on the Greeks in Black Scholes? They have no idea what the words mean or how they are used in context. They should be given an instant on the spot written exam on different meaning of hedged and their answers posted on the internet. Then the indictment should be dropped. Everyone in this case couldn’t pass an exam on what hedged means. When someone says hedged without qualification, it means delta hedged, i.e. against market level.

Funds sells call options on SPX and buys SPX so its delta neutral. They say they are hedged. That’s standard speak.

Are they hedged against volatility? No. You can say its hedged and 5 seconds later says its not hedged against volatility. Its not a contradiction, because when you say its hedged w/o saying specifically against what, it means against market level but doesn’t include volatility hedged.

http://en.wikipedia.org/wiki/The_Greeks

Q: Are you hedged.

A: Yes. (only means delta hedged)

Q: Are you vega hedged?

A: No.

Q: Are you delta hedged.

A: Yes.

Hedged can mean hedged against some variable or parameter indicated by context or by prior discussion or understanding. If someone says hedged to customers, he is not speaking about being vega hedged. How many customers know what vega is?

Can these prosecutors pass a test on the Greeks in Black Scholes? They have no idea what the words mean or how they are used in context. They should be given an instant on the spot written exam on different meaning of hedged and their answers posted on the internet. Then the indictment should be dropped.

]]> Comment on SocGen, Kerviel & True and Fair View by Gaute Solheim http://schulzkelaw.com/socgen-kerviel-true-and-fair-view/#comment-8 Gaute Solheim Tue, 11 Mar 2008 19:31:26 +0000 http://schulzkelaw.com/socgen-kerviel-true-and-fair-view/#comment-8 "The gains and losses were all a single product of the rogue behavior of a single trader who was discovered and ushered out of the company very early in 2008." I am not able to follow your logic here. If the rogue behaviour had resulted in record gains in early 2008, and he had been ushered out of the company for trading outside his limits, would it then be more "true and fair" to put all the gains from all the different trades he did in the 2007 result since they were "a single product"? I have a hard time figuring out where in the IFRS a persons intent for "rogue behaviour" is treated as a cause to bundle together independent trades that otherwise would be handled independently. As you understand I am not convinced yet. I do agree with you that IFRS is a step in the right direction, but I still suspect that SG stepped out of line here. Gaute “The gains and losses were all a single product of the rogue behavior of a single trader who was discovered and ushered out of the company very early in 2008.”
I am not able to follow your logic here. If the rogue behaviour had resulted in record gains in early 2008, and he had been ushered out of the company for trading outside his limits, would it then be more “true and fair” to put all the gains from all the different trades he did in the 2007 result since they were “a single product”?
I have a hard time figuring out where in the IFRS a persons intent for “rogue behaviour” is treated as a cause to bundle together independent trades that otherwise would be handled independently. As you understand I am not convinced yet.

I do agree with you that IFRS is a step in the right direction, but I still suspect that SG stepped out of line here.

Gaute

]]>