Despite a sharply negative opening, the Nikkei is up as of this hour, so there is some hope that the frazzled nerves of Thursday might calm in the US too. The Financial Times and the Wall Street Journal both address one of the major causes of the mini-panic: a new focus on counterparty risk. The […]
Read more...Michael Lewis, of Liar’s Poker fame, gives an elegant explanation of why Goldman got its subprime position right when everyone else on the Street was disastrously wrong. And I mean elegant in the mathematical sense: it fits known facts and has few moving parts. As Lewis tells it, Goldman did not use the largely impotent […]
Read more...Bloomberg reports that the stock prices of bond insurers MBIA and Ambac tanked today and the prices required for their credit default swaps soared on news that Standard & Poor’s and Moody’s were again reviewing their AAA ratings (in S&P’s case, based on new, more negative information about subprime defaults; Moody’s said in response to […]
Read more...Mohamed El-Erian, in “A route back to potency for central banks,” in today’s Financial Times, gives a short but persuasive analysis of what ails central banks today and what they need to do to strengthen their role. El-Erian is insightful and his opinions often carry some weight, by virtue of being both a Serious Economist […]
Read more...Bloomberg reports that Standard & Poor’s has announced that it will review bond insurers’ ratings a mere month after reaffirming the scores of MBIA and Ambac, due to subprime losses exceeding the rating agency’s assumptions. Note this move was anticipated, but the statement suggests the fate of the bond guarantors has elevated priority and the […]
Read more...MBIA’s already richly priced bonds declined 12% in the first week after issuance The issue had been priced as if MBIA were a distressed credit, even though it still has an AAA rating. How long can the rating agencies keep this charade going? Per the decline, a reader who saw this before I did aptly […]
Read more...There has been an enormous amount of fulminating about rating agencies, yet they solider on, their status still secure even if their reputations are considerably tarnished. John Dizard in today’s Financial Times adds some grist that is likely new to many readers. He discusses how the rating agencies operated before the SEC created the “Nationally […]
Read more...After bond fund giant Pimco’s Bill Gross gave a back-of-the-envelope estimate of a possible $250 billion in losses resulting from the impact of deteriorating corporate credit and bond defaults on the $45 trillion (notional amount) credit default swaps market, other commentators have been making improved (but still quick and dirty) calculations. One interesting effort appears […]
Read more...The ratings agencies are newly emboldened, or perhaps feel the need to look tough where they can to make up for their tattered reputations elsewhere. The latest salvo: Moody’s has announced that it will take a haircut to the debt ratings of companies owned by buyout firms that engage in “aggressive” financial strategies. The more […]
Read more...Bloomberg has come across some correspondence with the SEC that sheds light on Goldman’s much commented upon “net short” subprime position. Note, despite the fulminations of certain members of the media, it is not at all clear that being short creates any liability whatsoever, regardless of whether customers may feel “had” or not. On secondary […]
Read more...Wolfgang Munchau provides nice succinct overview of some of the recent debate surrounding a source of financial system risk that has suddenly captured the popular imagination: credit default swaps. For those new to the concept, credit default swaps are effectively insurance. A protection seller (think insurer) takes the risk of default on a reference entity […]
Read more...Ooof, I am in possession of a hefty and detailed presentation on MBIA and Ambac by an investor that is short the stock of the two holding companies. I believe it is kosher to summarize its findings, particularly since it is all derived from public information. And you probably didn’t want to something that long […]
Read more...The Wall Street Journal reports that Prince Al-Waleed, who salvaged Citi in the early 1990s (its stock was at $9 on its way to zero) is expected to pump equity into the bank again. Note there are some disparities between the Journal’s story and the one in the Financial Times. For example, the Journal says […]
Read more...To be clear, MBI, still rated AA by Standard & Poor’s, and Aa2 by Moody’s, is issuing a hybrid (fixed for five years, then floats) at a yield of 14%, which is consistent with a company at risk of bankruptcy. Note that this deal got off only after investors forced a repricing (hat tip Steve […]
Read more...Yesterday, the Wall Street Journal reported that Merrill and Citigroup were looking for more funding to compensate for pending writedowns. The Journal said Merrill was seeking $3-$4 billion, Ciit $10 billion, and the losses the firms could take on mortgage-related debt could be as high as $25 billion. That number already appears to be out […]
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