John Gapper, in a Financial Times comment, “How Bear Stearns Put Itself First,” argues that even though Bear Stearns’ decision to step in to manage the unraveling of its two troubled hedge funds was self-interested, it was also bad for the hedge fund industry and for the CDO market. I don’t agree with Gapper, and […]
Read more...Louis Uchitelle, in “A False Sense of Security? You Must Own a Home,” revisits the subject of Americans’ propensity to break into the piggybank of the accumulated equity in their home. In a concerned, rather than alarmist article, he points out that the amount of net homeowners’ equity has fallen, even in a time (until […]
Read more...In “Bear Stearns Investors Await Tally on Losses,” the Wall Street Journal reports that investors in the two troubled Bear Stearns hedge funds won’t get end of May results until July 16. While this delay is probably crazy-making for fund holders, Bear is no doubt erring on the side of conservatism. Recall that the High-Grade […]
Read more...Admittedly, this story from the Washington Post is largely anecdotal. But I am passing it along because it is an indicator of how widespread housing stress is. Remember, unemployment is still low, and normally defaults move up and down with overall employment. The sources in this article attribute the increase in mortgage defaults and foreclosures […]
Read more...You might reasonably ask why we are discussing first quarter bankruptcy filings now that the second quarter has just started. It’s because the Administrative Office of the US Courts takes its sweet, and increasingly long, time in publishing the data. And it’s a doozy. The story didn’t get much play because the AO’s quarterly report […]
Read more...James Hamilton of Econbrowser, in “CDOs: what’s the big deal?” weighs in on the question of what went wrong in the CDO market. He makes a point I haven’t seen stated as clearly anywhere else, namely, some CDO tranches may have been been likely to lose money from the get-go: The benign view of CDOs […]
Read more...As readers may know, I sometimes find marked differences in how the Financial Times and the Wall Street Journal report the same story, with the FT typically doing a much better job. In this case, I was underwhelmed by both papers’ coverage, but together they conveyed some useful information. Federal banking regulators (including credit union […]
Read more...I’m a bit late to this article from Friday’s Financial Times, “Bear Stearns assured investors on leverage,” which gives some new information on the formation of the Enhanced Leverage Fund, the one that went into crisis first, and how it went pear shaped. Cioffi had the bad luck to not only have some trades fall […]
Read more...In a move intended to restore confidence, Bear Stearns has sidelined former asset management head Richard Marin (he remains as an advisor) and has brought in Jeffrey Lane, vice chairman of Lehman, as his replacement. Ousting Marin was pretty much required, and on paper Lane has the right stuff (Lehman is a serious bond player, […]
Read more...There’s been plenty of discussion on this blog and elsewhere of the questionable role of rating agencies, particularly regarding collateralized debt obligations. Rating agencies are slow to downgrade weakening credits (if you are in the debt business, this is very old news), suffer from acute conflicts of interest in rating CDOs (they are a de […]
Read more...OK, schizophrenia is a bit too strong a word, but it got your attention, right? “Dissonance” is closer to the mark, and differing points of view in a plugged-in, market-savvy paper like the Financial Times is an interesting sight to behold. Both stories address the same general topic, namely, whether the current mess in subprimes […]
Read more...A Wall Street Journal article, “Subprime: Point to Where It Hurts,” endeavors to clarify the issues in modifying loans to try to save defaulting mortgage borrowers. Previous stories have mentioned that the fact that most residential mortgages go into mortgage backed securities makes it harder to change terms than in the old days, when the […]
Read more...Another day, another subprime casualty? The Caliber hedge fund was heavily exposed to 2005 subprimes, which is a new cause for pause, since heretofore, it was the 2006 subprimes that had shown the worst performance. But now troubles are showing up in the 2005 cohort. The UK fund isn’t as big as either of the […]
Read more...Barry Ritholtz gave some helpful tidbits about CDOs on his blog, The Big Picture. The source is the Bloomberg magazine (unfortunately only for those with terminals can subscribe). From Ritholtz (quoting Bloomberg); “Worldwide sales of CDOs—which are packages of securities backed by bonds, mortgages and other loans—have soared since 2003, reaching $503 billion last year, […]
Read more...For those of you who are relatively new to the complexities involved in the pricing of collateralized debt obligations (CDOs), this Financial Times article, “Worries grow about the true value of repackaged debt,” gives a good overview. Since the article is lengthy, and the first part covers largely familiar ground, I’ve excerpted the second half. […]
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