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Risk Update: March 2025 – “Moral Hazard”

“Moral hazard is a natural concern for a policy which removes the main risk that hedge funds face when taking leveraged positions in cash-futures basis.” Kashyap, et al, March 2025 The above quote comes from a recent Brookings Papers note, “Treasury Market Dysfunction and the Role of the Central Bank”, authored by Anil Kashyap (University of Chicago), Jeremy Stein (Harvard), Jonathan Wallen (Harvard) and Joshua Younger (Columbia/Tudor Investment Corporation). (See Figures 6 & 7 in Convex Strategies | Risk Update: August 2024 – “Unknowable” for the relevance of their institutional affiliations.) 4_Kashyap-et-al.pdf The authors introduce the note thusly: “We build…