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Active Expert: Bruce Hildenbrand

1 Post tagged with the credit_default_swaps tag

In the past year the Union Cycliste International (UCI), the governing body of professional cycling, has been in the process of rolling out their biological passport program in hopes of catching drug cheats. The biological passport program represents a huge change in direction on the war against drugs. The UCI realized that artificially increasing the oxygen carrying capacity of blood is the single most effective way to cheat in endurance sports so they have developed a programs to monitor cyclist's blood carrying capacity.


Basically, the biological passport program uses a rider's blood, collected in out-of-competition and in-competition tests to develop a profile of their "normal" blood values. Cyclists will be tested randomly throughout the year and if their blood profile strays outside a statistically significant range they may be subject to sanction. What makes this revolutionary is that there does not need to be a positive test for a banned substance, such as EPO, or a banned method, such as homologous blood transfusion. If a rider's blood is 'bad', they are out.


I will discuss the biological passport program in more detail in a future blog. What struck me as interesting here is that until biological passports, it seemed that every time the drug police found and banned a new drug, the riders and teams had something else which was newer and more effective. The cops just never seemed to be able to catch up with the criminals.


Which brings us to the current financial crisis. Many financial experts believe that the meltdown was triggered by the mortgage crisis which was setup in large part by the use of the so-called 'credit default swap' investment vehicles. Some of us remember the Savings and Loan crisis which hit back in the late 1980's, also there was the junk bond scandal, etc., etc.


So, it seems like, as is the case in cycling, the financial police seem to be one step behind the criminals. Certainly, the new administration will outlaw or heavily regulate credit default swaps, but what will be the next investment vehicle created to game the financial system and create an unfair advantage? Can the financial police ever catch up or do they need something like an investment equivalent of biological passport which monitors the financial dealings of banks, brokerage firms, etc.


As the Dow heads lower and the government can't figure out how to properly bail out the sinking financial markets, it seems very apropos to point out that it is true that sometimes life does indeed imitate sports.



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