Are hedge funds too big to fail?

Here is a San Francisco Fed report. When you think about systemic risk it is important to distinguish between claims that, say, JPMorgan is "systemic" -- a "global systemically important financial institution" is I guess the nomenclature -- and claims that, you know, there is a system, and it is systemic. If every hedge fund has the same positions, and those positions in aggregate are big enough, and if those positions amplify the risks of banks, then hedge funds pose systemic risk, even without the smallest (or largest) of them being "systemically important" or whatever. Anyway:

In percentage terms, during normal market conditions, a 1 percentage point increase in the risk of hedge funds is estimated to increase the risk of investment banks by 0.09 percentage point. During times of financial distress, however, the same shock increases the risk of the investment banking industry by 0.71 percentage point.

The war on the 1 percent.

"In Brazil, if you say how much you make, you’re an idiot, irresponsible, or an exhibitionist," says a lawyer, and he's talking about the risk of kidnapping and not just, like, general social norms. No one anywhere should really go around saying how much money they make. But top executives of public companies generally have to as a matter of securities disclosure -- though in Brazil, those companies are suing to avoid disclosure, and the related kidnapping risk. Obviously part of the point of those disclosure rules is for shareholders to know which executives are overpaid so they can take action if they are dissatisfied, though kidnapping is rarely the preferred way for dissident shareholders to express their dissatisfaction. Meanwhile, shareholders are cool with Goldman not disclosing its political contributions, as the Constitution might require.

Is there anything Eric Schneiderman won't probe?

Alternatively, is there anyone who won't probe Herbalife? Your model might be, if one or two regulators is investigating you, you can persuade them that you've done nothing wrong, but if like fifty regulators are probing you then at least one of them is going to take a scalp, and if one of them gets something then they all need to or it's embarrassing. So the New York attorney general investigation into Herbalife, on the heels of the FBI one and the FTC one and who knows what else, can't be a good sign.

That high-frequency trading case against the CME is dumb.

Alison Frankel talks to Georgetown market-structure professor James Angel about Friday's high-frequency trading lawsuit: "The problem, according to Angel, is that the new theory is based on old facts that have already been examined and re-examined by the SEC and CFTC." Are you surprised? The legal system rewards those who are early to file class-action lawsuits as soon as even possibly illegal information is disclosed, so there is a socially wasteful race to capture rents by filing lawsuits that do not necessarily contribute to real discovery of facts or compensation of victims. There's a metaphor in there somewhere. Also, here's how Phil Ivey beat a casino for millions playing baccarat using "edge sorting."

Citi earnings reactions.

I just really like these headlines: "Citi’s Stock Seems Priced for More Mediocrity." "Citigroup's bad bank is doing better than its good one." Man, people love Citigroup. Also it found a second, smaller fraud in Mexico, though unlike in the previous fraud, here the people who stole Citi's money agreed to give it back. Which is nice of them?

Warren Buffett doesn't believe in the volatility of volatility.

Berkshire Hathaway's equity-index options portfolio is valued using the static volatility estimate that Berkshire used at the inception of the trades, even as volatility has gone quite a bit up, and then rather down, since those trades started. That is not exactly the traditional way to value your derivatives but remember Berkshire is in it for the long haul.

Bart Chilton has a new job.

The colorful and mulletted former CFTC commissioner is "currently working on a book called 'Theft' about how Wall Street and Washington intersect," and now he's joining DLA Piper as a swaps lawyer, I guess as research for the book? Or something. "Bart will be an invaluable resource for clients who will be subject to increased regulation over the next few years," says the firm.

Things happen.

Prestige matters in MBA recruiting. Failing your Series 63 is a bad sign. Hedge fund manager arbitrages his commute. Comedy show is inaccurate. "When I am watching a movie I often think 'why isn't the Coase theorem holding here?'" Data journalism. "I think one should in general be rather suspicious of investing or donating to groups on the basis that they, or you, or now, is special." "I worked hard to get good credit to look good to lenders and this happens," says God.

To contact the writer of this article: Matt Levine at mlevine51@bloomberg.net.

To contact the editor responsible for this article: Zara Kessler at zkessler@bloomberg.net.