October 2008 Archives

Sub prime....credit default swaps.....short selling....and other fine words

Words which until recently most of us non banker types (and even some banker types) had never heard of, much less knew the meaning of or understood the concepts. I have read a number of articles in recent days particularly on credit default swaps (CDS) which appear linked to our latest financial market turmoil. The bottom line: greed. I will attempt to give you a layman's version...

Have you ever noticed that the person selling a business always wants more that you think its worth? Ian de Lange of Seed Investment Consultants aptly describes a common ailment of business owners known as the endowment bias.

This is the theory that people place a higher value on an asset once their right to that asset has been established. In other words people, and more specifically, investors, place a higher value on an investment that they own relative to that same investment if they did not own it.