Monthly Archives: March 2007

Is Financial Innovation Really As Beneficial As It’s Supposed to Be?

A post from a reader, “Toothless Fed,” argues that the latest wave of financial innovation has produced “profit grabs” by the few at the expense of the many, Ponzi schemes, and an erosion of traditional values like prudence. Overheated? Overwrought? Perhaps. Or maybe he’s just calling a spade a spade. Other people are coming to […]

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Is Alpha All It’s Cracked Up to Be?

Supposedly, the reason that sophisticated investors like pension funds and endowments pay 2% management fees and 20% upside fees (and sometimes more) to hedge funds and private equity funds (and higher-than-index-fund fees for long equity managers) is that they are buying “alpha,” which is the manager’s ability to beat the relevant market. (To be more […]

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Toothless Fed, Part 2 (Risk Management Shortcomings)

Forgive us if we seem to be picking on New York Fed president Timothy Geithner. Actually, not that we know him, but he has a reputation (by Fed standards) for candor. So the problems we have with his speech should not be seen as an attack on him, but on the increasing difficulty of the […]

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Toothless Fed, Part 3 (The Ghost of LTCM)

Most sophisticated financial people I know take great comfort from the happy resolution of the LTCM debacle. As you may know, LTCM (Long Term Capital Management) was a hedge fund created by John Meriwether, a star trader from Salomon who headed its highly profitable bond arbitrage group, and included two Nobel prize winners among its […]

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New York Fed President Timothy Geithner’s Not-So-Reassuring Speech

Compared to other Fed presidents, Timothy Geithner is straightforward and more than usually willing to talk about bad things. So when he gives a speech that is comparatively upbeat, as he did earlier this week (“Credit Markets Innovations and Their Implications“) it should be reassuring. So why did this speech bother me? It wasn’t as […]

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"Praying for Chemotherapy"

That’s Barry Ritholtz’s take on the market’s reaction to the Federal Reserve’s Open Market’s Committee release this week, which staged a nice peppy rally because the report was seen as signalling a greater likelihood of an interest rate cut. Some more discerning observers read the report much less positively, and saw it pointing to stagflation. […]

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What Nukes Would Do To Big US Cities

Those who remember the paranoid days immediately following September 11 may recall Nuke-O-Matic. The site let you pick a location and size of nuclear weapon, and then see how extensive the damage would be, with concentric circles color coded for the level of devastation. This article, “Study details catastrophic impact of nuclear attack on U.S. […]

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Is the Fed Culpable in the Subprime Meltdown?

On Thursday, both Democratic and Republican members of the Senate Banking Committee chewed out Roger Cole, the Federal Reserve’s director of supervision and regulation, for failing to intervene in the rapid rise of the issuance of mortgages to customers who were clearly likely to default, and now are, losing their homes and their investment in […]

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How Liquidity Begets More Liquidity (and Asset Bubbles)

An excellent article Thursday in the Financial Times, “In the new liquidity factories, buyers must still beware,” by Mohamed El-Erian, the CEO of Harvard Management Company. He explains that a great deal of the liquidity in the markets is created not by the monetary authorities, but by the participants themselves, and works through a simple […]

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Jeffrey Sachs on Species Loss

All the hubub about global warming seems to have driven the other environmental slow-motion-train-wreck, species loss, out of the news and the popular imagination. The story in brief, as reported by the Secretariat of the UN Convention on Biological Diversity in a Reuters story, “Humans spur worst extinctions since dinosaurs:” “In effect, we are currently […]

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Freegans: Leading Indicator of a Shift in Sensibilities?

An intriguing piece, “One Person’s Dumpster Is Another’s Diner,” ran yesterday at Alternet.org. For those who aren’t familiar with the term (as I wasn’t prior to reading this piece) Freeganism (a conjunction of “free” and “vegan”) is the philosophy that participation in our capitalist economy makes a person complicit in the exploitative practices that are […]

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The Fed Hints at Stagflation

That’s how a couple of Fedwatchers interpreted the latest FOMC report, including Tim Iacono at Seeking Alpha in “FOMC Statement Changes Scream Stagflation.” The report also says the housing “adjustment” ain’t over. FYI, we thought staflation was coming (see here) From Iacono: The Federal Reserve Open Market Committee meeting concluded just a short time ago […]

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New Housing Finesse: "Short Sale" Rather than Forclosure

A Bloomberg story, “Homeowners, Lenders Skirt Default, May Curb U.S. Housing Slump,” highlights a practice used by banks with borrowers in default, the so-called short sale. Rather than foreclose on the property, banks accept a price below the loan balance on a quick sale. Although the Bloomberg piece doesn’t say so, this is a long […]

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