Category Archives: Credit markets

Is Financial Innovation Really As Beneficial As It’s Supposed to Be?

A post from a reader, “Toothless Fed,” argues that the latest wave of financial innovation has produced “profit grabs” by the few at the expense of the many, Ponzi schemes, and an erosion of traditional values like prudence. Overheated? Overwrought? Perhaps. Or maybe he’s just calling a spade a spade. Other people are coming to […]

Toothless Fed, Part 2 (Risk Management Shortcomings)

Forgive us if we seem to be picking on New York Fed president Timothy Geithner. Actually, not that we know him, but he has a reputation (by Fed standards) for candor. So the problems we have with his speech should not be seen as an attack on him, but on the increasing difficulty of the […]

Toothless Fed, Part 3 (The Ghost of LTCM)

Most sophisticated financial people I know take great comfort from the happy resolution of the LTCM debacle. As you may know, LTCM (Long Term Capital Management) was a hedge fund created by John Meriwether, a star trader from Salomon who headed its highly profitable bond arbitrage group, and included two Nobel prize winners among its […]

New York Fed President Timothy Geithner’s Not-So-Reassuring Speech

Compared to other Fed presidents, Timothy Geithner is straightforward and more than usually willing to talk about bad things. So when he gives a speech that is comparatively upbeat, as he did earlier this week (“Credit Markets Innovations and Their Implications“) it should be reassuring. So why did this speech bother me? It wasn’t as […]

Is the Fed Culpable in the Subprime Meltdown?

On Thursday, both Democratic and Republican members of the Senate Banking Committee chewed out Roger Cole, the Federal Reserve’s director of supervision and regulation, for failing to intervene in the rapid rise of the issuance of mortgages to customers who were clearly likely to default, and now are, losing their homes and their investment in […]

How Liquidity Begets More Liquidity (and Asset Bubbles)

An excellent article Thursday in the Financial Times, “In the new liquidity factories, buyers must still beware,” by Mohamed El-Erian, the CEO of Harvard Management Company. He explains that a great deal of the liquidity in the markets is created not by the monetary authorities, but by the participants themselves, and works through a simple […]

Does the Optimistic Cagan Analysis of Adjustable Rate Mortgages Hold Water?

Yesterday, the Wall Street Journal had a story, “Economy Can Withstand More Mortgage Foreclosures,” which said, About 1.1 million foreclosures are likely to result from jumps in monthly payments on adjustable-rate home-mortgage loans made in 2004 through 2006, according to a study by First American CoreLogic. Christopher Cagan, director of research at the real-estate-information concern […]

Belated Take on Jim Rogers’ Prediction of Housing Market Meltdown

A couple of days ago, we took a dim view of an “alarmist” (and more important, inaccurate) analysis of alleged real estate losses at commercial banks. The reason we took issue with it was that is was wrong on several critical counts, and its conclusion was therefore off base. We use the word “alarmist” with […]

Will Tightening in China Reverberate Around the World?

Many observers overlooked the fact that increases in bank reserve ratios in China and India, which reduce liquidity by curtailing how much banks can gear their equity (and banks are much more important financial players in those markets than in the US) plus a teeny interest rate increase in Japan set the stage for the […]

Subprime Spillover

A short post on Seeking Alpha, “A Play on Subprime Woes and Homebuilders: TOL vs. KBH” that summarizes a Barron’s story on how the subprime saga is developing. It is consistent with what we’ve said in other posts, namely, by itself, the subprime problem isn’t big enough to damage the economy seriously. But the subprime […]

A Overly Alarmist Assessment of Real Estate Loan Losses

Now I am as fond of gloom and doom scenarios as the next guy. But some analysts are presenting fairly straight up the center scenarios of things will get bad (as opposed to how bad things will get) that don’t comport with facts. I like and have a lot of respect for the blog The […]

Are Hedge Funds Their Own Worst Enemies? (Part 2)

In the post above, we discussed how hedge funds’ desire to play financial games like bankruptcy contests by their own rules is backfiring. Not only are they failing to get their way, but their efforts to win special treatment are confirming an increasingly dim view the public has of them. In Friday’s Financial Times, Gillian […]

Optimists and Pessimists on Subprimes and the Markets Generally

As readers may recall, Felix Salmon posted a very critical take, “Is there a looming crisis in the mortgage market?” on Gretchen Morgenson’s New York Times story, “Crisis Looms in Mortgages.” We parsed the two stories, drawing on other sources, in our “Reactions to New York Times Mortgage Market Story.” Since then, the markets took […]

The Tinkerbell Market

One of today’s lessons is to have greater courage in my convictions. In a number of earlier posts (such as “The Rising Tide of Liquidity,” part 2 and part 3 of the same, “Where Has the (Perception of) Risk Gone“) I pointed to how toppy the markets have been, and how much capital has flowed […]

Collateralized Debt Obligation Market Looks Shaky

The financial press has fretted that the problems in the subprime market may spread to other parts of the mortgage market. While defaults and delinquencies aren’t contagious, investors can get nervous and decide they may have been overly optimistic about risks in safer parts of the market. But the next likely casualty isn’t higher grade […]