Had a really interesting conversation with @matt_levine about the intersection of technology and finance, coming to an Internets near you in the not too distant future.
I definitely learned something; hope everyone will enjoy it.
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I think the phrase "moral hazard" needs to show up somewhere in this discussion
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Hopefully all parties to this know the score, which defangs the risk of moral hazard. It’s two large, sophisticated companies with finance departments and dangerous professionals staffing them making an agreement through the service of the investment bank.
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Note that this is only true if the risk profile is symmetric. Some endeavours have large downside risks but limited upside; I wouldn't recommend that VCs buy convertible bonds in bank robbery, for example.
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I mean as a mathematical statement, no, the risk profile doesn't have to be symmetric at all for this instrument to be positive expected value. As to how finance people think about downside, any outcome other than bankruptcy means that they get paid more than they put in.
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Thanks. Twitter will use this to make your timeline better. UndoUndo
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If it's really risky and high volitility, was it ever really a loan to begin with? Lots of duck waddling and quacking involved in the underwriting process of that bird ;)
Thanks. Twitter will use this to make your timeline better. UndoUndo
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