Forgive comparatively terse comments tonight. The Wall Street Journal reports that Citi and Merrill could have additional losses of up to $25 billion between them and are scrambling to secure foreign funding commitments of $3-$4 billion at Merrill and up to $10 billion at Citi While the article doesn’t say so clearly, the goal is […]
Read more...Hhhm, wonder whether more influential people said privately what we said publicly, that Berkshire’s move into muni bond insurance was a punch in the gut to already reeling bond guarantors. They desperately need more capital if they are to maintain their ratings, which is essential to their business model, but who in his right mind […]
Read more...There are three good and overlapping state of global finance pieces tonight; they all have worthy ideas and I’ll integrate them as best I can. The first is a post by Thomas Palley, “The Subprime – Trade Deficit Connection,” which is a companion piece to th Financial Times article by Stephen Roach yesterday. Roach depicted […]
Read more...The New York Times has an approving story, and the Financial Times a more neutral one, on the fact that New York state superintendent of insurance Eric Dinallo called Berkshire Hathaway’s insurance chief, Ajit Jain, and urged him to enter the municipal bond guarantee business. The license was issued in record time, a bit more […]
Read more...Ooof, things have gone from bad to ugly. Bloomberg reports that the stocks of mortgage insurers MBIA and Ambac plummeted due to an earnings estimate cut by Morgan Stanley and talk of a Countrywide bankruptcy. It goes without saying that these developments imperil the fundraisings the insurers have been told by the ratings agencies they […]
Read more...I wish I had written this piece by Stephen Roach, formerly one of Morgan Stanley’s economists (and noted bear), now head of Morgan Stanley Asia. Roach does an elegant job of drawing connections between some issues that other commentators have treated separately. Roach sees the oft-decried global imbalances (shorthand for countries like China, Japan and […]
Read more...The origins of the phrase “Let them eat cake” are uncertain, but it is generally attributed to Marie Antoinette, and at the time, her proposal wasn’t as loopy as it sounds now. The French peasantry was hungry due to high bread prices resulting from a flour shortage. The queen urged the poor instead to eat […]
Read more...jck at Alea pointed to this deceptively important Reuters story, “Ability to track risk has shrunk ‘forever’ -Moody’s,” which says that financial innovation has created information asymmetries that make it impossible for participants to understand their exposures fully. That position may cynically be seen as a defense of the rating agencies’ poor performance, but the […]
Read more...The Wall Street Journal broke the story that Bear Stearns’ 74 year old chairman James Cayne has told board members he will give up his CEO role but stay on as chairman. 57-year old president and investment banker Alan Schwartz is expected to assume the CEO post. I complained back in November that the Wall […]
Read more...Rating agency Moody’s forecasts that the economic slowdown will start to show up in markedly higher junk bond defaults. Note that, thanks to LBOs, nearly half the corporate issues outstanding are now rated junk. That means a normal cyclical deterioration in weaker credits will affect a larger proportion of corporations than in the past. From […]
Read more...I saw this piece by Wolfang Munchau, “The credit revolution looks to the long-term,” last night, and every time I’ve thought about what to say about it, I’ve gotten unusually foggy headed (of course, some readers may contend that I am always foggy headed and am merely having an atypical spell of self-awareness). I think […]
Read more...Ray Dalio, founder and chief investment officer of Bridgewater Associates, is no doubt far from alone in being someone whose opinion is solicited by the Fed. Nevertheless, in an interview in today’s Financial Times, he takes a position diametrically opposed to conventional wisdom. He argues that the remedy for our current economic, particularly credit, woes, […]
Read more...Even though interbank rates have come down, in all likelihood due to the operation of the Fed’s Term Auction Facility, Treasury prices indicate that investors are still worried about credit and counterparty risk. This may in part be a reaction to the losses suffered by enhanced cash funds and money market funds (although the latter […]
Read more...Merrill Lynch is under investigation in Massachusetts for having sold some CDOs that fell 91% in value in less than a year to Springfield, a municipality that was just getting out from under its own fiscal woes. The amount at issue isn’t large by Wall Street standards; the CDOs in question fell by $13 million. […]
Read more...Credit default swaps are insurance against defaults, and can be written on specific entities or on indices. Higher CDS prices mean the protection sellers require higher payments to assume the default risk. CDS prices increased sharply this week for the logical suspects, namely, commercial banks with substantial real estate exposure and homebuilders. From Bloomberg: The […]
Read more...