When these financial heavy hitters are concerned, it can’t be good…

credit default swaps — notional value is closer to the amount at risk, because such swaps promise to make up the losses if a borrower defaults on the notional amount.”

Today, New York Fed chief Timothy Geithner, SEC Commissioner Annette Nazareth and Sir Callum McCarthy, chairman of the U.K.’s Financial Services Authority, write in the Financial Times that the financial innovation fueling the creation of derivatives transactions often drives the market faster than the pace of improvement in market infrastructure. “In a more integrated global market, we will increasingly find ourselves compelled to pursue borderless solutions,” they argue.
http://financialrx.blogspot.com/
quoting WSJ’s Joseph Schuman – Treating Derivatives As a Transnational Risk
quoting the Financial Times

Consumer Credit Counseling Services of the East Bay
A Division of Money Management International
Regional Headquarters – 7677 Oakport St., Suite 210, Oakland California

Credit Education
http://www.crediteducation.org/

Here is a collection of links to articles about risk, risk tolerence and risk aversion.

Risk Overview

Alpha, beta, and R-squared are components of Modern Portfolio Theory (MPT), which is a standard financial and academic method for assessing the risk of a fund, relative to a benchmark. A mutual fund’s alpha and beta are calculated in relation to a market index. Each fund is linked to an appropriate index based on its investment category.
http://help.yahoo.com/help/us/fin/funds/funds-06.html

Risk Glossary
http://www.riskglossary.com/link/risk.htm

Using Logic To Examine Risk

people are naturally risk averse – the more risk is involved with a particular asset, the greater the return that investors will require as compensation. However, many consumers have a skewed perception of the risk they actually are taking on. In this article, we’ll take a look at how consumers’ often skewed perceptions of risk can be just plain risky.
http://www.investopedia.com/articles/06/logicandrisk.asp

Determining Risk And The Risk Pyramid

You might be familiar with the risk-reward concept, which states that the higher the risk of a particular investment, the higher the possible return. But, many investors do not understand how to determine the level of risk their individual portfolios should bear. This article provides a general framework that any investor can use to assess his or her personal level of risk and how this level relates to different investments.
http://www.investopedia.com/articles/basics/03/050203.asp

I knew that…

I have read about efficient market hypothesis (EMH) and understand the concept. However, it seems to me that this was an over simplification of how the world works. There are just too many times when the theory does not jive with reality. Crowds, ideals, greed tend to get in the way. Sometimes, it just isn’t fair but it should be if the markets really were efficient.

While I am not fan of Cramer, you can’t argue that he has a significant impact on folks who see themselves as investors, speculators and financially savvy.

The article Mad Money … Mad Market? cites a study that confirms my worst fears – people really listen to Cramer and act on his advice. There are also people who are rewarded for betting against the “average” viewer.

the “Cramer bounce”. According to the study, Cramer’s buy recommendation causes a statistically significant short-term rise in the stock’s price on the day directly following the day it is recommended. This rise is most apparent for small stocks, where the increase is just over 5% compared to the previous close. For the entire sample, the average rise is almost 2%. … This peak in the proportion of buyer-initiated trades ultimately drops back to pre-recommendation levels after about 12 days. … the stocks’ prices did eventually return to their “true” values.

EMH relies on the assumption that the main players in the market are rational. This study is an example of how irrational behavior can cause stock prices to fluctuate in a manner that is contrary to EMH theory. Investors should not discount the role that emotion and investor psychology play in the way the market behaves.
http://www.investopedia.com/articles/06/madmoney.asp

And of course, there are others who fully understand this irrational behaviour and are only to happy to help make this market efficient by shorting and selling their stocks to the excited viewing audience for a handsome profit. That’s show biz…