Category Archives: Hedge funds

Questioning Health Care Cost/Budget Fearmongering: Consumer Revolt Against Prescription Drug Costs Already Underway

As we discussed last weekend, two Federal Reserve Board economists shot gaping holes the CBO’s health care cost increase assumptions in CBO’s long term fiscal forecasts. As technical as this sounds, these long-term cost increase assumptions are the big driver of the much ballyhooed deficit explosion. And as the Fed economists’ paper discussed in considerable detail, the CBO’s assumptions on the rate of increase look indefensibly aggressive, which in turn means the hysteria about entitlements eating the economy deserves far more scrutiny than it is getting.

Some evidence on the pressures against health care cost trees growing to the sky comes in a new post by Wolf Richter.


Mirabile Dictu! The SEC Finally Investigates Magnetar

More than four years after Serena Ng and Carrick Mollencamp of the Wall Street Journal first took notice of the highly destructive ways of the Chicago hedge fund Magnetar, which created a series of toxic CDOs, the SEC finally appears to be taking a serious look at some of their deals.


On Andrew Schiff’s “Middle Class Lifestyle” in New York City

Felix Salmon has been bending over backwards listening to and reporting on Andrew Schiff’s claim that he’s suffering making ends meet on $350,000 a year and only wants to give his kids a “middle class lifestyle” in New York City. I offer an sanity check as a long standing Manhattan resident and financial services industry denizen/scorekeeper.


Satyajit Das: Pravda The Economist’s Take on Financial Innovation

By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010)

In the old Soviet Union, Pravda, the official news agency, set the standard for “truth” in reporting. Discriminating readers needed to be adroit in sifting the words to discern the facts that lay beneath. Readers of The Economist’s “Special Report on Financial Innovation” (published on 23 February 2012) would do well to equip themselves with similar skills in disambiguation.


Occupy the SEC Discusses Volcker Rule on RT

It’s always a pleasant surprise to see a TV program have a long form discussion on a fairly technical topic. Readers should enjoy the RT interview of Caitlin Kline and Alexis Goldstein of Occupy the SEC on its Volcker Rule comments. They discussed the major areas they were concerned with and some loopholes in the draft regulations.


So Why Hasn’t SEC Enforcement Chief Robert Khuzami Resigned? SEC Only Now Investigating CDOs Created on His Watch at Deutsche Bank

I’d heard from German speaking readers about the Der Spiegel report of an SEC investigation in its German edition over the weekend and they’ve now released it in their English language version.

Der Spiegel is careful about its sourcing, so readers should take this account seriously.


Wolf Richter: CEO of Dexia – ‘Not A Bank But A Hedge Fund’

By Wolf Richter, San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Cross posted from Testosterone Pit.

Dexia SA, the Franco-Belgian mega-bank that collapsed and was bailed out in 2008 and that re-collapsed in early October, is a big deal in Belgium where it employs 10,000 people and has over 21 million bank accounts. Its assets of $715 billion dwarf Belgium’s $395 billion economy.


Revisiting Rehypothecation: JP Morgan Markets Its Latest Doomsday Machine (or Why Repo May Blow Up the Financial System Again)

Yves here. One of our ongoing frustrations at NC is when the media and blogosphere get up in arms about what we think are secondary issues.

We’ve been loath to comment on a Thomson Reuters article that claimed that rehypothecation of assets in customer accounts was the reason MF Global customer funds went missing. The reason we’ve stayed away from this debate is that the article, despite its length, did not provide any substantiation for its claim. While it did contend that US customer accounts were set up so as to allow assets to be rehypothecated using far more permissive UK rules, and described how rehypothecation could be abused, it did not provide any proof that this was what took place at MF Global. Note that this does NOT mean we are saying that rehypothecation did not play a role, merely that the article was speculative.

The bombshell testimony of CME chief Terry Duffy yesterday, that a CME auditor heard an MF Global employee say that “Mr Corzine was aware of the loans being made from segregated [customer] accounts,” suggests that some of the money went missing via much more straightforward means, namely, taking it and hoping to be able to give it back if the firm survived.

But there is plenty of reason to be worried about rehypothecation.


Were Customer Accounts Pilfered at Jon Corzine’s MF Global? (Updated)

Truth be told, I hadn’t paid much attention to the implosion of MF Global, because so many hedge funds went under during the crisis that yet another levered trading firm death seems less than newsworthy unless it is big enough to constitute a possible systemic event. The collapse of MF Global didn’t seem all that unusual, save for the titilating angle that the firm was headed by former Goldman CEO and New Jersey state governor Jon Corzine (I’d treated the failure of hedge funds by other storied names, such as Jon Meriwether and Myron Scholes as comment-in-passing incidents).

But the picture changes considerably with the report that hundreds of millions of customer assets may be “missing”.


The Eurobanks’ Latest Scheme to Escape the Pain of Recapitalization: Pull More Financial Firms into the TBTF Complex

As much as I like to think I have a reasonably active imagination, it never ceases to amaze me how a bad situation can easily become worse.

Readers probably know the European authorities have been stunningly late to wake up to the fact that EU banks are undercapitalized, apparently being the only ones to believe their PR exercise known as a stress test. The banks’ options would seem to be limited. One is to raise more equity, which is kinda difficult now since no one is terribly keen about banks in general, and the ones in most need of more capital are the least attractive. Second is to let existing loans roll off. The authorities don’t like that idea, since less lending will increase downward economic pressures. And since bank CEO pay is correlated with size of institution, the banksters aren’t too keen about that either. Third is to cut pay to help accelerate earning their way out. You can guess how likely that is to happen. Last is to suffer state-assisted recapitalization, which under EU rules, would be a draconian exercise.

But never fear, the financiers have an “innovative” way around this problem. And this innovation is a remarkably destructive idea. From the Financial Times:


Philip Pilkington: Twitterifying Catastrophe

By Philip Pilkington, a writer and journalist based in Dublin, Ireland

As stock markets continue to fall and the eurocrisis rolls on an independent trader called Alessio Rastani appears on BBC live and gives a candid account of how he, as a trader, views the crisis.

He sees it, he says, as an opportunity to make an awful lot of money. He tells viewers that they too should seek out safe havens – such as US Treasury bills and dollar holdings – to weather the continuing storm.

Not long after the Twitterati are out in droves


Did Standard and Poor’s Break SEC Regulations in Disclosing Its Downgrade to Select Parties?

The Administration and its allies have gone after Standard and Poor’s for its downgrade of the US bond rating to AA+. They have attacked S&P’s general competence, its failure to reexamine its decision in the light of a $2 trillion math error (a Wall Street Journal story does not reflect well on S&P’s haste) and the subjective and political basis for its judgment. Even if these attacks have merit, however, they come off as being less than convincing by virtue of sounding like sour grapes.

There is a much more straightforward basis for questioning S&P’s conduct, and it has nothing to do with how S&P arrived at its rating.