Category Archives: Credit markets

Proposal to Break Up Rating Agencies

As rating agencies came into renewed focus this week as a result of Senate Banking Committee hearings on their role in the structured credit mess, one suggestion appears to have been gotten little play in the financial media. Yesterday, the Financial Times reported that Eric Mindich, CEO of Eton Park Capital and newly appointed head […]

Rating Agency Lies!

Bloomberg today reports that the SEC is looking into whether issuers leaned on rating agencies to provide the desired ratings on structured credit transactions. However, there may be less here than meets the eye. SEC chief Christopher Cox, along with senior executives from the rating agencies, are testifying before the Senate Banking Committee today. Query […]

Charles Plosser, the Fed’s Inflation Hawk

The president of the Philadelphia Fed, Charles Plosser, is tough on inflation. He is not a member of the FOMC until 2008, and is breaking rank with the official Fed view in expressing his worries about the risks of permissive monetary policy. Plosser argued prior to the Fed rate cut that a reduction wasn’t necessary; […]

The ECB’s Mixed Views on Inflation vs. the Dollar

Like our own Fed governors in the run up to the FOMC meeting that produced a 50 basis point Fed funds rate cut, so too have European Central Bank been sending mixed signals on domestic versus international priorities in their interest rate policies. But their actions are the mirror image of ours. For them, member […]

Morgan Stanley Sued for Redlining

Investment banks are learning about reputation risk the hard way. First we had Bear Stearns winding down two troubled hedge funds it would have rather cut loose and let sink on their own. Then Lehman was pilloried in the Wall Street Journal, in “How Wall Street Stoked the Mortgage Meltdown, for its particularly close relationship […]

Dizard on the Uses and Misuses of Financial Models

John Dizard of the Financial Times looks at the role of financial models in the recent market perturbations and argues that most observers are making the problem seem more complicated than it actually is. First, some firms had systems that were designed unduly for the convenience of the traders, and it proved way too easy […]

IMF, Rogers vs. Goldman on Financial Stability

By happenstance, Bloomberg has an interesting trio of prognostications for the financial markets. Admittedly, they have differing degrees of authority. Most would give the IMF considerably more credence than either Jim Rogers or Goldman. However, all three have a following with investors. Not surprisingly, Goldman’s report is upbeat, the IMF’s is cautious tending towards the […]

Market Predictions: More Interest Rate Cuts, Sustained Housing Price Declines

Some quick updates on what market prices reveal about investor expectations. First, Bloomberg tells us that Treasury note prices are trading sufficiently far below Fed funds as to predict another rate cut before year end ; Since the Fed last week lopped half a percentage point off the central bank’s target for overnight lending between […]

Martin Wolf: Banks Hold Central Bankers Hostage

In an intriguing article today, “The Bank loses a game of chicken,” Martin Wolf, the Financial Times’ chief economics writer, followed the lead of the Bank of England’s Governor Mervyn King in backing down from their shared view that central bankers should be willing to let all but those banks “too big to fail” go […]

Rate Cut Gives Little Relief to Commercial Paper Market

Despite the lift the Fed’s rate cut gave to the stock and corporate bond markets, the commercial paper market remains in distress. While CP outstandings are still falling, which is not good, particularly given this month’s maturing CP is much greater than last month’s, the level of decline is not as severe as during the […]

Standard & Poor’s: Corporate Defaults Set to Rise

The Financial Times tells us that Standard & Poor’s forecasts that corporate defaults are due to rise thanks to tightening credit conditions. While S&P focused on 75 at-risk issuers with a total of $35 billion of debt outstanding, hardly an earth-shaking number, the report said more could be in store. Defaults on junk bonds could […]

Bernanke’s Bind

A great deal of ink has been spilled on yesterday’s 50 basis point cut in the Fed funds rate and parallel reduction in the discount rate. I am very time stressed, so this quick reaction will (hopefully) be followed by a more thoughtful piece in the next day or so. First, even though I think […]

Consumer Debt Likely to Become a Negative for Economy

Economists Barry Cynamon and Steven Fazzari argue that much of the growth in the US over the past 25 years has been fueled by consumer debt. Their research indicates that the consumers will cut spending as a result of the housing recession, which they believe will trigger the worst contraction since the 1980s, and possibly […]

Northern Rock: How a Non-Systemic Risk Led to a "Systemically Important Event"

At least in the US, the Fed rate cut yesterday crowded out most other financial news. As the Wall Street Journal’s MarketBeat blog put it (hat tip Paul Kedrosky): Lehman Brothers probably could have reported that it was shutting down operations and moving to Kazakhstan and the Fed move would have still inspired a rally. […]

Paulson Opposed to "Hasty" New Regulations

It’s generally not a good sign when a regulator exhibits distaste for his job. Recall that Federal banking supervision takes place through a variety of channels, but the main actors are the Fed and the Treasury, through the Office of the Comptroller of the Currency and the Office of Thrift Supervision. So Treasury Secretary Hank […]