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 […]
Read more...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 […]
Read more...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 […]
Read more...The problem with offering deals that involve optionality is that the option will inevitably be exercised only when it is favorable for the user, which as things often work out, can wind up being at a time which is not so hot for the option provider. And in the case of bank standby lines of […]
Read more...Reader eTrader alerted us to an important but under-reported development today, namely, that FAS 140 has been provisionally modified so as to kill SIVs. While this structure was effectively dead as of now, there remained the possibility of it being reconstituted in the future. As FT Alphaville reports, the problem with SIVs is that they […]
Read more...Greenspan decided to launch a frontal attack on critics of his tenure at the Fed, via a Financial Times comment, “The Fed is blameless on the property bubble.” Needless to say, his defense does not stand up to scrutiny. Greenspan was happy to take credit for the commonly-held view that central bankers were responsible for […]
Read more...Private equity funds (except for specialists like Chris Flowers) seldom make investments in banks, and for good reason. They are regulated businesses with complex, integrated overhead structures that don’t lend themselves to the sort of cost cutting and breakups that are easy ways for LBO firms to unlock value. On the one hand, with sovereign […]
Read more...While there have been dark mutterings about how Bear shareholders were cheated in the sale of the firm to JP Morgan, I don’t have much sympathy for that view. Plenty of businesses fail every day; equity investors usually lose their entire stake and employees are fired. While it is sad on a human level to […]
Read more...Bank stocks enjoyed a nice bounce from the fact that UBS announced a first quarter loss equal to 5% of Switzerland’s annual GDP. The logic evidently was if things are that bad, they can’t get much worse, ergo, a bottom must be at hand. But this credit contraction has produced a number of head fakes […]
Read more...We had read earlier of banks failing to foreclose in Dade and Broward counties because the marker was so glutted with properties for sale that there was simply no point. We heard yesterday of discussion in Cleveland of plowing largely vacant subdivisions back to farmland. A third indicator of the degree of real estate stress: […]
Read more...Because I was distracted today (houseguest, plus preparing for out of town trip), I haven’t spent as much time as I would have like on the Congressional hearings into the Bear bailout. Judging from the media reports, it seems that the assertive presentations by the perps, um participants in the deal were not met with […]
Read more...As the Financial Times points out today, we are witnessing a replay of the pattern seen during Japan’s credit bust, except in reverse. Western banks were leery of extending credit to the Japanese and charged a premium over normal interbank rates. Now that the Japanese credit markets are more liquid than many others, foreign bank […]
Read more...Avinash D. Persaud gave a speech to the Committee of European Securities Regulators (posted at Willem Buiter’s blog) that argues that banks’ risk models and regulation based on market based pricing were bound to fail. That’s a very bold claim, yet Persaud appears to have the goods. If any of you have worked with models, […]
Read more...The word was out earlier today that UBS was going to take a stunning first quarter writedown of $18 billion (the total turned out to be $19 billion), far and away the largest credit crunch writedown to date. But for my money, the attention-getting number is the quarter’s net loss in relation to equity: $12 […]
Read more...Reader Scott passed along this article from the Telegraph. Note that earlier this year, a colleague with high-level connections at the Treasury and Fed said that they were looking at a partial nationalization of US banks. The reasoning was that even if they were technically solvent, they would be sufficiently impaired, between writedowns and carrying […]
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