Category Archives: Credit markets

Who is Carrying the CDO Risk? Look to the Dealers

With the holiday news slowdown, we thought we’d use the opportunity to focus on good posts on other sites. One by Christopher Whalen at Seeking Alpha, “Collateral Debt Obligations: Mark-to-Dealer,” addresses some topics near and dear to our heart, namely, whether there is systemic risk and if so, where will it manifest itself? Whalen’s views […]

What If We Stop Believing the Ratings?

That’s the question raised by the Financial Times’ capital markets editor Gillian Tett in a short update on rating agencies, and it’s an important one. As we discussed earlier, the credit markets have come to depend on rating agencies: If a terrorist were to blow up Moodys, S&P, and Fitch, it would have a devastating […]

Another Subprime Mortgage Hedge Fund Halts Redemptions

Bloomberg reports that a Key Biscayne based brokerage firm, United Capital Markets, barred redemptions on its hedge funds that invested in subprime mortgages. This isn’t Bear Stearns redux. The firm presented the problem as simply investor jitters. Bloomberg reports that the fund suffered modest losses (5%, if you believe the valuations, which given press about […]

Bear Update du Jour

The Wall Street Journal provides a pre-holiday Bear recap, “After Blowup, Bear to Revamp Risk Control” (reproduced in full below). The high points: 1. Bear is bringing its asset management unit under tighter control of its parent and implementing stronger risk controls. Apparently the stringent practices of its trading floor weren’t observed in the asset […]

Bear Giveth as Well as Taketh Away (Treasury Edition)

While we’re have a cliche fest, an ill wind blows nobody good, and it looks like that Bear Stearns hedge fund debacle had some unexpected upside, namely, producing a flight to quality, meaning Treasuries, sparking a rally. I’m sure you could have said the same of past crises (just for starters, the 1997 emerging markets […]

Was Bear Stearns’ Hedge Fund Intervention a Bad Idea?

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 […]

New York Times on Shrinking Homeowners’ Equity

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 […]

Bear Stearns To Report Hedge Fund Results Late

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 […]

Report from DC: "Area Suburbs See Rise in Foreclosures"

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 […]

Bankruptcy Filings Surge in First Quarter

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 […]

Were Some CDOs Tranches Losers From the Start?

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 […]

FT and WSJ on New Regulations on Subprimes

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 […]

More Backstory on the Bear Stearns Hedge Funds Meltdown

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 […]

Bear Hires Lehman Vice Chair Jeff Lane to Head Asset Management Division

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, […]

Now It’s Official: Rating Agencies Hiding Risks on Mortgage Bonds

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 […]