The riskless trade
May 15, 2013, 10:40 pm
Filed under: Uncategorized

If you want to know a riskless, free-option trade, it’s student loans, apparently. I heard this from (I gather) Econ Prof. Noah Smith on Twitter. Student loans are riskless for the government and they make the government a free profit (with, did I mention, no risk). You guys should all go all-in into SLABS now. (<—Note: NOT actual investment advice)

His arguments involved two main factors: (1) historically-realized default rates/severities, and (2) the purportedly low correlation in student-loan portfolios, again by which I assume he means historical/realized. Both of these relate to the magic of portfolio theory (which apparently, according to Econ Profs, makes risk go away, i.e. idiosyncratic risk becomes riskless if it’s bundled into a portfolio) and are indeed great prospective risk metrics which, I think you’ll agree, served us so very well during the subprime/CDO crisis. I think some investment bank should quickly snap up Noah Smith to be their Fixed-Income Chief Risk Officer.

I can’t link to any of this because he seems to have blocked me, or whatever bizarrely pussy/cowardly move it is that people do on Twitter that makes me suddenly not be able to find the tweet back-and-forths we’d been sending. (Sorry, I’m still kinda new to Twitter, maybe someday I’ll figure out how to do that pussy move too). So you’ll have to take my word for it. But I did want to record for posterity that I got this hot trade idea of riskless student loans from a Econ Prof, and what it was based on. You’re welcome.

6 Comments so far
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I think this should work

Comment by A Lady

Yah but that leaves out the bulk of his tweets. Because he executed the pussy maneuver (seriously, I don’t know how people do that).

Comment by The Crimson Reach

oh, well, that is part of it, anyhow. he didn’t delete i don’t think, you’re just buried in the blizzard he was giving to ModeledBehavior.

Comment by A Lady

“…read the textbook” Some more derptastic advice from the distinguished professor.

How about you go beyond the character limits and create a blog response that is comprised of more than just butthurt snark. There’s this thing, you may have heard of it at some point during your pseudoscientific “education”, called data that will help convince a reader more effectively than a picture of a bunny (though he is quite cute) with meme-font.

And I just can’t take someone seriously that thinks it’s a bad thing when someone destroys the cell phone of a person disrupting a performance. Artists, of all stripes, work their asses off to put on a show and you think that’s a perfect time to infect the web with you inanities. Turn off your phone and watch the show, you self-centered boy-child. .

Comment by general butt naked

[…] discovers student loans are (apparently) a Risk Free Trade. A Professional Economist said […]

Pingback by This Week in Reaction | The Reactivity Place

[…] loans. Last time we observed in this space that Noah Smith thought it was a good idea because student loans are riskless because he’s so smart he knows of the existence of portfolio theory… or something (I’m paraphrasing). And now (of course) Matthew Yglesias is here to chime in […]

Pingback by First-order thinking, SWPL moms, and the Warren-Facebook Phenomenon | Rhymes With Cars & Girls

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