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Quotable Quotes

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Banking is necessary; banks are not.
– Bill Gates

There was a period of remorse and apology for banks and I think that period needs to be over.
– Bob Diamond


It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest.  We address ourselves not to their humanity, but to their self-love.
- Adam Smith

Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.
- John Maynard Keynes

If the story of the past quarter of a century has a one-line plot summary, it is the rediscovery of the power of market capitalism.
– Alan Greenspan

These capitalists generally act harmoniously and in concert to fleece the people, and now that they have got into a quarrel with themselves, we are called upon to appropriate the people’s money to settle the quarrel.
– Abraham Lincoln

I have friends who keep telling me how much it costs them to keep me in poverty.
- Gandhi


I sometimes wonder why people still use the Black-Scholes formula, since it is based on such simple assumptions - unrealistically simple assumptions.
- Black (1990)

Derivatives are the most sophisticated of financial instruments, the most intricate, the most arcane, even the most risky.  Very 1990s and to many people a dirty word.
- Peter Bernstein

Speaking philosophically, interpreting something as a derivative depends on one’s point of view. (…) Whether or not it pays to make this interpretation depends on the particular purpose at hand.
– Professor Mark Rubinstein

Derivatives need to be well-controlled and understood.  We believe that we do that here.
- Barings Bank Annual Report 1993

It’s just that so much more is known now and so many things have been pretty well solved, that the scale of the problems remaining, in what you could call pure derivatives technology, isn’t of the same order that it once was.
– John Cox

Don’t focus on derivatives.  One of the most dangerous activities of banking is lending.
– Ernest Patrikis, New York Fed.

Efficient Markets

In an efficient market, competition among the many intelligent participants leads to a situation where, at any point in time, actual prices of individual securities already reflect the effects of information based both on events that have already occurred and on events which, as of now, the market expects to take place in the future.
- Eugene Fama

Investing in a market where people believe in efficiency, is like playing bridge with someone who has been told it doesn’t do any good to look at the cards.
- Warren Buffet

In markets as efficient as the financial markets, attempts to out predict the market are unlikely to be successful.  Because forecasting is thus a very unreliable means of eliminating risk, a remaining alternative is to manage the risks.
- Charles Smithson

Financial Forecasting

Those who have knowledge, don't predict. Those who predict, don't have knowledge.
– Lao Tzu

Every forecast is a probability distribution
– Jerry Marlow

The only function of economic forecasting is to make astrology look respectable
– Ezra Solomon and/or John Kenneth Galbraith

Prediction is very difficult, especially about the future
– Niels Bohr

Financial Innovation

If I have seen further it is by standing on the shoulders of giants.
– Isaac Newton

The most influential development in terms of impact on finance practice was the Black-Scholes model for option pricing.
– Robert Merton

The major impulses to successful innovations over the past twenty years have come, I am saddened to have to say, from regulation and taxes.
– Merton Miller

Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.
– John Maynard Keynes

Financial Markets

Financial markets exist to sell product.
- Anon

We are in the midst of a financial crisis the likes of which has not been seen since the Great Depression of the 1930s.  It is not business as usual, but the end of an era.
– George Soros

When the allocation of capital is the by-product of the activities of a casino, the job is likely to be ill-done.
- John Maynard Keynes

T'is against some men’s principle to pay interest, and seems against others’ interest to pay the principal.
– Benjamin Franklin

You only find out who is swimming naked when the tide goes out.
- Warren Buffett

The most powerful force in the universe is compound interest.
- Albert Einstein

Financial Models

All models are wrong, but some models are useful.
– George Box

Value-at-Risk is pure charlatanism.
- Professor Nassim Taleb

The Sharpe ratio is oversold.   I take the point that Sharpe ratios can give a false sense of precision and lead people to make predictions unwisely.
– William Sharpe

It is unfortunate that many market practitioners still base their analysis of the relationship between markets on the very limited concept of correlation.  Trying to model the complex interdependencies between financial assets with so restrictive a tool is like trying to surf the Internet with an IBM AT.
- Professor Carol Alexander

Foreign Exchange

A disordered currency is one of the greatest political evils.
– Daniel Webster

There is no sphere of human thought in which it is easier to show superficial cleverness and the appearance of superior wisdom than discussing questions of currency and exchange.
– Sir Winston Churchill

Risk Management

The word ‘risk’ derives from the early Italian risicare, which means ‘to dare’.  In this sense, risk is a choice rather than a fate.
- Peter Bernstein

Most major banking problems have been either explicitly or indirectly due to weaknesses in credit risk management.
- Basel Committee 2000

We are still living in the dark ages of financial risk management, where financial apothecaries face each new crisis with leeches, blood-letting, mumbo-jumbo, or simple blind faith in the markets.
- Professor Carol Alexander

A lot of people approach risk as if it’s the enemy when it’s really fortune’s accomplice.
- Sting

Risk comes from not knowing what you are doing.
– Warren Buffett

Major failures of regulation and supervision, plus reckless and irresponsible risk-taking by banks and other financial institutions, created dangerous financial fragilities that contributed significantly to the current crisis.
- G20 Communique, September 2009


Markets can remain irrational longer than you can remain solvent.
- John Maynard Keynes

The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you can follow these three rules, you may have a chance.
– Ed Seykota

For the typical retail investor, day trading isn’t investing, it’s gambling.  If you want to gamble, go to Las Vegas; the food is better.
– NASAA 1998

A fool and his money are lucky enough to get together in the first place.
– Gordon Gekko