I’m late to this good post from Steve Waldman, which has some provocative ideas about how stringent bankruptcy laws should be. He contends that the current regime is too friendly to creditors, which means they can and do make overly optimistic assumptions about recovery, which in turn makes them too ready to take risks. We’ve […]
Read more...Should this even qualify as news? From the New York Times: For the last eight weeks, nearly 200 federal examiners have labored inside some of the nation’s biggest banks to determine how those institutions would hold up if the recession deepened. What they are discovering may come as a relief to both the financial industry […]
Read more...Willem Buiter takes no prisoners, In his latest post, “The green shoots are weeds growing through the rubble in the ruins of the global economy”, he dispatches the idea that recovery is around the corner (citing Carmen Reinhart and Kenneth’s latest paper on the resolution of financial crises) and points out that the fiscal state […]
Read more...The way things are going, the US taxpayer is going to be backstopping every bond buyer in the US. The latest wrinkle is that the TARP will be extended to “certain eligible” life insurers. The report at the Wall Street Journal is skeletal: The Treasury Department plans to extend the Troubled Asset Relief Program to […]
Read more...We have been saying for some time that the policy premise of the Fed and Treasury has been that the financial crisis is that it is a liquidity crisis, not a solvency crisis. If you are of that school, the fallen prices of various assets is due to a combination of scarcity of funding plus […]
Read more...Given the deterioration in local tax bases, it may seem surprising this Moody’s negative outlook for states and municipalities wasn’t issued earlier. However, this is the first time that the rating agency has provided a warning across a class of borrowers. However, despite the grim tone, in fact municipal borrowers (save industrial revenue bonds, in […]
Read more...One benefit of performing research is picking up interesting trivia. Adam Smith, in The Wealth of Nations, advocated usury laws (limits on interest rates) because they would promote lending to prudent borrowers and productive projects, which was better for society as a whole: The legal rate…ought not be much above the lowest market rate. If […]
Read more...Note that the 53% cumulative default rate for junk bonds over the next five years foreseen by Deutsche Bank analyst Jim Reid is nearly twice the level forecast by Moodys of 29%, It is also well in excess of the rate during the S&L crisis, which produced a nasty but comparatively short recession. From Bloomberg: […]
Read more...Let us go back to some basic principles: 1. Despite bank and Administration smoke-blowing to the contrary, the problem with the so-called toxic assets on bank balance sheets is NOT that they cannot be priced, but that banks do not like the prices on offer from willing buyers. We have read anecdotes suggesting that the […]
Read more...The nays on the public private partnership program, the Treasury’s gimmick program to relieve banks of toxic assets, won positive comments from the obvious beneficiaries, namely banks and possible fund managers, and quite a few negative reviews from those worried about the benefits relative to the cost to the taxpayer (such as Nobel prize winners […]
Read more...The George Santayana saying, “Those who cannot learn from history are doomed to repeat it,” is so oft repeated as to verge on cliche. Yet the US variant of this syndrome is to be aware of history, then rationalize how it does not apply to us. Japanese policy makers from the early days of the […]
Read more...To his credit, Eric Dinallo, the New York Superintendent of Insurance, did take the brewing mess at bond insurers MBIA (under his jurisdiction, and completely intransigent) and Ambac seriously enough to try to Do Something About It. In the end, his efforts came to nought, swept aside in the tidal wave of credit messes. But […]
Read more...Wolfgang Munchau often has a dour outlook, but his Financial Times comment today, “A new plan needed as the cycle grows vicious” is gloomy even by his standards. Munchau argues that the heroic seeming measures to aid the banks are insufficient to compensate for the losses they are and will continue to suffer, and that […]
Read more...We’ve warned for some time that this downturn is likely to see more companies entering bankruptcy wind up being liquidated rather than continuing to operate thanks to Chapter 11, which allows companies to hold creditors at bay, renegotiate debt and restructure operations, with the idea that an ongoing concern will be able to provide better […]
Read more...Since I haven’t put together a detailed timeline, I run the risk of having the sequence wrong and therefore being at risk of putting foot in mouth and chewing too. But from where I sit, the only person in the US who seems to be doing anything meaningful to try to contain the looting of […]
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