Category Archives: Banking industry

Why the Happy Talk About the Credit Crisis?

I am frequently mystified at what goes on in the markets. I am even more mystified when people who ought to know better make pronouncements that appear to be profoundly counter-factual. Even if they are talking their own book, the high odds of being revealed as bald-faced liars proven wrong ought to make them worry […]

Forecast: $2 Trillion in US Originated Credit Losses

As the credit crisis progresses, the estimates of the total damage march relentless upward. Reader Scott passed along a note by Frank Veneroso, Market Strategist for the Global Policy Committee of Allianz Dresdner Asset Management, which gives a top-down and bottoms-up estimate of credit losses. Note that this estimate is based strictly on US consumer […]

Credit Default Swaps and Bank Leverage

The Financial Times reports that that $45 trillion figure that most of us have been using for the size of the credit default swaps market is woefully dated. The International Swaps and Derivatives Association will announce today that outstanding contracts now total $62 trillion, up from $34.5 trillion a year ago. Institutional Risk Analytics gives […]

Stressed Banks Underreporting Libor Rates

The Wall Street Journal reports on another sign of how bad the credit crunch has gotten: banks fudging on what they are reporting as their short-term cost of interbank borrowing, out of fear of revealing how stressed they are. So the Libor becomes less useful as a guide. That in turn means that the so-called […]

Dizard: Fed Backs Hypocrisy of Bank Recapitalization

John Dizard, in “Fed plan is spoilt by its backing of hypocrites,” returns to a notion he has brought up in some recent Financial Times articles, namely, that the amount of funds that banks need to rebuild their balance sheets is so large that it cannot be obtained without some form of government sponsorship. Note […]

"Citi allows loan ‘cherry picking’"

As told in the Financial Times, LBO groups interested in buying leveraged loans on offer from Citi are able to select the assets they want, rather than buy pieces of the package, as Citi had planned. I rarely take issue with the FT, but in this case, particularly in its choice of headline, the pink […]

Henry Kaufman: Fed Failed as Regulator

Henry Kaufman, former chief economist of Salomon Brothers in its heydey and a Wall Street eminence grise, joins the chorus of critics who said that the Fed’s failure to regulate got us into our economic mess. Note that Kaufman is not new to this theme, just more blunt, as a post from June of last […]

Goldman Recommends Shorting Wamu

We were not at all keen about the TPG-led $7 billion investment in Wamu, and we appear to have company. Note that it’s one thing for an analyst to downgrade a stock, quite another to recommend selling it short. From Bloomberg: Washington Mutual Inc.’s full-year loss will be wider than first estimated, according to Goldman […]

Ban "No One Could Have Foreseen the Crisis"

Floyd Norris of the New York Times, in an otherwise fine piece, “It’s a Crisis, And Ideas Are Scarce” has a paragraph that set my teeth on edge. But let’s deal with the parts that have merit first, and hold the rant in abeyance. Norris uses the Paul Volcker’s speech at the Economic Club of […]

Stress Returns to Interbank Lending (It Isn’t Over Till the Fat Lady Sings Edition)

Just when market participants were patting themselves on the back, focusing on indicators that suggested the credit crunch was easing, even making forecasts that it would be behind us before year end, troubles creep back on little cat feet. The proximate cause for Fed intervention wasn’t the subprime crisis or rise in agency spreads, but […]

"Radical reform will be flawed by compromise and fudging"

John Plender in the Financial Times offers a hit list of what he views as the obvious priorities for financial services reform and assesses the odds of them being implemented. It’s a useful exercise, but also a sobering reminder of how difficult it is to effect change in an industry that has proven to be […]

"What Could the Fed Do?"

Whenever Greg Ip, the Wall Street Journal reporter whose beat includes the Fed, writes a piece about the central bank, one has to wonder whether the story was a plant. This isn’t to denigrate Ip’s coverage; it’s the reality of the quid pro quo of access journalism. His page one story today, “Fed Weighs Options […]

Volcker Criticizes Fed Bailout of Bear, Says US in a Dollar Crisis

Former Fed chairman Paul Volcker, speaking at the Economic Club of New York, took issue with the central bank’s controversial loan to JP Morgan to help it effect an acquisition of Bear Sterns. For Volcker, who has steered clear of saying much about current Fed policies, these comments are a coded rebuke. Things have gotten […]

IMF Forecasts $945 Billion in Credit Related Losses

The IMF issued a stark forecast in its Global Financial Stability report of the damage resulting from the credit crisis, an eye-popping $945 billion. Note that unlike John Hatzius of Goldman’s $2 trillion estimate, this total does not include knock-on economic effects of reduced lending. In addition, the IMF also cited permissive regulation as one […]

Rosner on the Prospects for the Credit Markets (Not for the Fainthearted)

Institutional Risk Analytics featured an interview with Joshua Rosner (hat tip reader bill) which focused on the outlook for the credit markets. We have a great deal of respect for Rosner; among other things, he co-authored a terrific paper, “Where Did the Risk Go? How Misapplied Bond Ratings Cause Mortgage Backed Securities and Collateralized Debt […]