In this episode, Planet Money hosts take a closer look at proprietary trading, which is under attack by the latest proposal from the Obama administration. The new banking regulations proposed by the president call for a ban on commerical banks engaging in potentially risky trades with their own funds—or, in some cases, your own funds. Professor Andrew Lo helps shed some light on the murky world of 'prop trading.'
MIT Sloan's Andrew Lo received the first Market Technicians Association Educational Foundation (MTAEF) Mike Epstein Award in honor of his long-term support of technical analysis in academia and practice.
MIT Sloan Prof. Andrew Lo comments on end-of-year concerns for a 'double-dip' recession: "Year end is typically not a great time and the flight to safety into bills in motivated in part by general concerns about the economy and whether another shoe, such as commercial real estate, will drop," says Lo.
Citadel may have a higher burden of proof than other brokers since its bread-and-butter business is making bets in the markets. "The perception of a conflict of interest is a hurdle that they're going to have to go the extra mile to manage," says Andrew Lo, a professor of finance at MIT's Sloan School of Management.
The recent proposal by the Fed to regulate bankers’ compensation practices is understandable given the events of the past two years, but setting caps on salaries and bonuses misses the fundamental problem of compensation on Wall Street. Despite the public resentment surrounding finance-industry payouts, the fact is that no one objects to paying for performance. We just want to make sure we’re not getting fleeced or paying for pure dumb luck, and this is where the problem lies.
A study co-authored by MIT Sloan Prof. Andrew Lo concluded that under certain conditions, all it takes to fan the flames [of a financial crisis] is for a critical mass of people to extract money from their homes in the form of home equity loans, sales and "cash-out" refinancing.