Courtesy of Tyler at ZH
A great way to spend an hour and a half and understand just how black swans can annihilate seemingly riskless portfolios, especially those with a preponderance of Ph.D.’s as portfolio managers who claim to understand "risk". If nothing else fast forward to the 1 hour mark to listen to Eric’s discussion of endogenous risk and LTCM’s trading of liquidity in a crisis, and how it can all go horribly wrong when you have too many people on the same side of the trade. Prime Brokers, especially those of preferential banks, likely can see all the "liquidity" exposure from their counterparties and nudge their own institutions to react appropriately. (hat tip *.*).
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