We wondered ever since the Fed established and then repeatedly increased the size of its Term Auction Facility, which now provides $150 billion of support to the US banking system, how the central bank would ever be able to wind down this program. It certainly can’t do it when the financial system is fragile, and […]
Read more...The US government has gone from being the biggest player in the mortgage market to being just about the only player. Per recent reports sent by an alert reader, Freddie Mac and Fannie Mae now finance 80% of all mortgages, and the FHA guarnatees another 10%, so these entities now come close to having mortgage […]
Read more...The Wall Street Journal reports today that Citigroup is shutting down Old Lane Partners, a hedge fund started by Vikram Pandit that the bank acquired a mere 11 months ago. The bank decided it couldn’t spare the capital to shore up the struggling hedge fund. The article noted: Old Lane has essentially broken even since […]
Read more...Normally, underwriting a public stock offering is a highly profitable, low risk business. In the US, managers and underwriters collect a handsome fee (7% gross spread on IPO, lower on secondary offerings) but assume virtually no risk, because the deals are (usually) pre-sold via investor commitments (circles) before the deal is priced and the underwriters […]
Read more...Do you remember the Ford Pinto? The 1970s car had a nasty tendency to explode into flames in rear end collisions. But the piece de resistance was when litigation exposed a Ford internal memo that showed the company was not only aware of the problem, but had run the math and concluded reinforcing the car […]
Read more...A piece by John Dizard in the Financial Times, “Get used to underwriting big lenders,” made me realize a bit of cognitive blindness. Central banks are committed to backstopping the credit default swaps market. Of course, that should be obvious. The Bank of England, ECB, Fed, and other central banks have intervened in various ways […]
Read more...We’ve taken a dim view of plans to use government sponsored enterprises like Freddie Mac and Fannie Mae, and the Federal Housing Administration as vehicles to prop up a housing market that, even with its decline to date, is still overpriced in many areas of the country relative to incomes. Many have spoken in favor […]
Read more...Without a doubt, the Federal Reserve now faces the most difficult financial and economic climate in our collective memory. And it is increasingly apparent that its options are constrained. Although it is premature to arrive at definitive judgments, it’s nevertheless worth asking whether some of these limitations were unwittingly self-created. Friday’s market rout, triggered by […]
Read more...An institutional investor passed along these initial estimates of the damage that the Street will take from the downgrade of MBIA and Ambac, Bear in mind that these presumably do not become operative until Moody’s joins S&P in deeming both concerns’ insurance subs to be AA. These loss forecasts are only those to banks and […]
Read more...It really is very hard to come up with decent proposals to contend with our highly integrated, international, essential, and not-so-well functioning financial system. While some have developed general guidelines that sound attractive, figuring out how to implement them is quite another matter. For instance, in a recent Financial Times comment, former Treasury secretary Larry […]
Read more...Just when the Fed thought it had gotten financial markets turbulence under control, conditions start to worsen. Lehman is looking wobbly and markers are signaling increased worries about interbank funding. Bloomberg tells us that a key indicator of bank willingness to lend, the spread between three month Libor and the forward overnight index swap, is […]
Read more...The UK’s Guardian is publishing three extracts from a new book by , Larry Elliott and Dan Atkinson, “The Gods That Failed: How Blind Faith in Markets Has Cost Us Our Future.” It seemed worthy of note because it illustrates the backlash against the Wall Street types caricatured by Tom Wolfe as “Masters of the […]
Read more...Note: this post has been shortened from its original version due to an error pointed out by alert readers. Apologies! The Term Auction Facility is considered within the Fed and by the Street to be a success, even though academic studies have found that the TAF did not achieve its intended goal of reducing risk […]
Read more...As the mortgage mess grinds on, just as with body counts in war, we are getting to the point, as matters get worse, that the numbers don’t have the impact they used to or ought to. The forecast that housing prices may fall 30%, which would put over 40% of the US mortgages underwater, is […]
Read more...Willem Buiter decided to provide some further thoughts on regulatory reform over the holiday weekend. Given the nature of posting, and the difficulty of devising banking reforms, most proposals are going to fall short on detail. But this one falls a bit shorter than I’d like. For instance, Buiter clearly assumes international cooperation; these ideas […]
Read more...