Martin Wolf, the well respected lead economics editor of the Financial Times, turns to a favorite topic: why banks regularly get themselves in trouble. His answer: it’s “a risk-loving industry guaranteed as a public utility.” Privatizing gains and socializing losses, particularly if the employees share in that arrangement, is a formula for reckless behavior. Wolf […]
Read more...While the Financial Times has a wealth of journalistic talent, one of its standouts is capital markets editor Gillian Tett. She reported on the signs of trouble in the credit markets when the world at large thought everything was hunky-dory. One of her many prescient pieces was an article in January that used the fact […]
Read more...Bloomberg reports that JP Morgan analysts forecast that large bank exposure to CDO-related losses could reach as high as $77 billion. Note that they have written off more than half that amount already. They also estimated aggregate losses at $260 billion. We have come up with larger back-of-the-envelope loss estimates, but that was based on […]
Read more...From time to time, Mark Thoma features the views of his University of Oregon colleague and Fedwatcher Tim Duy. Duy got his last call wrong. He genuinely believed the Fed would not cut, basically because not cutting was the right thing to do, and misread the FOMC’s sensitivity to market reactions, or to be less […]
Read more...One not-widely-reported element of this credit mess is the sub rosa role that various organizations have played in shoring up some of the weakened players. Case in point: the Federal Home Loan banks, which during the acute phase of the credit crunch stood in for commercial paper buyers. From an earlier Bloomberg story: The FHLBs […]
Read more...Bernanke may not be touting the SIV rescue plan with the media, but this article in Bloomberg (hat tip Eschaton) suggests that he is supporting the selling effort: Loomis Sayles & Co. declined to invest [in the SIV rescue plan] after receiving one of 16 invitations for a meeting earlier this month with current Fed […]
Read more...For the most part, we don’t pay much heed to the Fed’s daily market operations since the vast majority of it relates to maturing repurchase agreements, and too many commentators focus on gross rather than net injections, which gives an illusory view of the Fed’s actions (yes, we could get to the bottom of this, […]
Read more...Bloomberg, Reuters, and FT Alphaville report that HSBC Holdings, the biggest bank in Europe, will restructure two SIVs whose assets total $45 billion. HSBC’s SIVs had been performing a bit worse than the norm, in part due to the fact that one of them, Asscher, had about 10% of its assets in collateralized debt obligations. […]
Read more...While a number of analysts, investors, and commentators have said for some time that the credit crisis is serious and is likely to damage the real economy, the only views that the Fed takes seriously are those of highly regarded economists, fellow regulators, and senior industry executives (oh, and of course, that of Fed futures […]
Read more...The most successful fund in the “bet against subprime” game is Lahde Capital, established last year by Andrew Lahde, is up 100% after fees. However, the fund is so small that the article in the Financial Time on its results didn’t say how much has under management. Firms that produce such dazzling returns can turn […]
Read more...In an article in today’s New York Times, Yale Professor Robert Shiller makes a very important point: the remedies proposed by the powers that be for the burgeoning housing mess are woefully inadequate: ….our reaction to the current crisis is anemic….The “Super S.I.V.” rescue plan, instigated in October by Henry M. Paulson Jr., the Treasury […]
Read more...Another day, another adverse development in the credit markets, or so it seems. Except now we are getting more than one troubling sighting a day. The latest tidings: liquidity in the credit markets is falling to the point where the European Central Bank has announced it will inject new cash. The underlying cause is worry […]
Read more...This liquidation of a Credit Suisse CDO, Adams Square Funding I (which I missed and a reader called to my attention) isn’t significant in financial terms (it had issued less than $500 million in securities) but shows investor lack of faith in the likelihood of recovery in the underlying assets. In Adam Square’s case, the […]
Read more...Does being a former Fed chairman mean never having to say you’re sorry? In Oslo, Greenspan maintained that the housing bubble was not due to negative real interest rates in the US, but instead was a “global phenomenon.” He is thus arguing that housing price appreciation in various markets resulted from a common source that […]
Read more...Charles W. Calomiris, the Henry Kaufman professor of financial institutions at Columbia’s business school, has an interesting but ultimately frustrating post at VoxEU in which he argues that the trouble we are seeing in the credit markets is not yet a Minsky moment (in very simplistic terms, the point at which an overlevered and highly […]
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