Financial Management & Risk

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UBS Reports Writedowns of 18.5 Billion GBP

Is Your Company Addicted to Value Extraction?

Is your company focused on creating value — or on siphoning it off from others? Capturing value from other stakeholders by manipulating the competitive market process to the company’s advantage exposes a company to reputational or legal risks. It also can undermine corporate values. Value extraction is typically easier than developing a competitive advantage through ongoing value creation. Companies can get hooked on the practice, to the detriment of real value creation.

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The Hidden Costs of the U.S. Government Shutdown

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Standard & Poor’s estimated the short-term cost of the recent U.S. government shutdown at $24 billion. MIT Sloan professor and former IMF chief economist Simon Johnson discusses the potential long-term consequences if trust in U.S. currency is undermined by continuing political uncertainty.

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Can High-Frequency Trading Drive the Stock Market Off a Cliff?

Much of the time, high-frequency trading firms play a benign role in financial markets. These firms use fully automated computer systems to buy and sell stocks very rapidly, making thin profits by being ahead of human orders.

But in a nervous market with downward price pressure, high-frequency trading can create fierce volatility. A computer simulation of high-frequency trading behavior showed that a complex system “may turn into an unfamiliar monster when an invisible tipping point is passed.”

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Sustainable Finance: 7 Steps in Managing Reputational Risk

Financial institutions’ funding decisions makes them gatekeepers for sustainable development. But how do they develop the policies and procedures that will guide how they make decisions and satisfy stakeholders? According to Olivier Jaeggi of ECOFACT, effective decision-making for sustainability can be summed up in a set of seven best practices.

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New Energy Policies for the World’s Sixth Largest Bank

Crédit Agricole, the sixth largest bank in the world, puts its money where its principles are in its recently released social and environmental policies. In keeping with its stated policy of supporting projects that are “sustainably vitalizing,” the bank’s policies prohibit funding energy projects that rely heavily on unsustainable fuels.

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Gaining a New Understanding of Risk

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In these days of uncertain markets – and an uncertain economy – risk can seem almost omnipresent. But how do you manage risk prudently – yet still grow your company? Harvard Business School professor Robert S. Kaplan began exploring risk management in the wake of the 2008 financial crisis, after he saw venerable firms such as Lehman Brothers and Bear Stearns collapse – despite having risk management functions. Here are a few of his insights on the topic of risk management.

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Insights from Leading Economists, Overheard at MIT

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An impressive group of economists -- one that included numerous MIT alumni, including a number of winners of the Nobel Memorial Prize in Economic Sciences -- assembled at MIT Thursday for an economics and finance symposium that is part of MIT's 150th anniversary celebration.

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How to Manage Risk (After Risk Management Has Failed)

Over the past decade, a number of the world’s respected companies have collapsed. A factor was these companies’ approach to risk management. Two different views have evolved on how risk should be assessed. The first — the frequentist view — is based on historical data. The second, or Bayesian, considers risk to be in part a judgment of the observer. Many measures are being deployed to prevent future crises — a shift from frequentist to Bayesian risk management should be part of this effort.

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Tax Cuts — or Tax Increases — for the Rich?

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U.S. President Barack Obama declared this week that he is in favor of letting tax cuts for the rich expire; those tax cuts were enacted under George W. Bush. Letting all the Bush-era tax cuts (for both the wealthy and others) expire would aid the U.S.

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How Much Power Do Economists Have, Really?

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There's a fabulous talk by Paul Krugman on MIT World that spells out the Nobel Laureate, New York Times columnist, and -- most important -- ex-MITer's argument that today's policymakers are moving too timidly to solve our world's massive economic problems. It's smart, convincing stuff.

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How This Financial Crisis Isn’t Different

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Harvard economist Kenneth Rogoff gave a fascinating guest lecture at MIT earlier this week -- looking at commonalities in a number of financial crises. Rogoff, who recently coauthored a new book, This Time is Different: Eight Centuries of Financial Folly with Carmen M.

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