The Financial Times provides an update on the Mess That Ate the Markets, circa September-October 2008. As we’ve harped on, Lehman’s bankruptcy advisors have been remarkably unhelpful in providing much insight on why the firm had such a big hole in its balance sheet. The previous estimate we had seen was $150+ billion (a swing […]
Read more...In case you lost track of this sorry affair, AIG, the biggest ward of the state in human history, continues to get the kid glove treatment. The IMF, doing the dirty work of the Washington Consensus, has repeatedly imposed far more pain on over-indebted countries than US government on the failed insurer. AIG originally agreed […]
Read more...This post first appeared on April 8, 2008 While there have been dark mutterings about how Bear shareholders were cheated in the sale of the firm to JP Morgan, I don’t have much sympathy for that view. Plenty of businesses fail every day; equity investors usually lose their entire stake and employees are fired. While […]
Read more...By Yeon-Koo Che, Professor of Economic Theory at Columbia University, and Rajiv Sethi, Professor of Economics, Barnard College, Columbia University, cross posted from VoxEU The role of naked credit default swaps in the global crisis is an ongoing source of controversy. This column seeks to add some formal analysis to the debate. Its model finds […]
Read more...It’s often the travail of a blogger, and small media generally, to have its story picked up by bigger fry without acknowledgment. But it’s one thing when a writer suspects having made a contribution to another’s story (there is, after all, the possibility of parallel inquiries bearing fruit on different timetables); quite another to have […]
Read more...The very minute the Paul Volcker, who proposed the sound idea that government backstopped banks not engage in proprietary trading, said that trades done on behalf of customers were meant to be excluded from this proposal, anyone familiar with trading could see he’d just deep sixed his idea. Proprietary trading existed LONG before banks decided […]
Read more...Boy, when you think you’ve seen the worst in utterly shameless, self serving tripe, someone manages to outdo it. Admittedly, it’s awfully hard to beat Steve Schwarzmann’s recent one-two punch of utter canard wrapped in tasteless hyperbole, that of Obama proposals that private equity kingpins pay taxes on what is really the fruits of their […]
Read more...This post first appeared on November 10, 2007 The equity markets seem to have finally realized that conditions are ugly in the credit markets, due to get uglier, and the mess will pull down the real economy. And the bad news continues. The dollar index fell to a new low. Wachovia said the value of […]
Read more...Yves here. We were skeptical of derivatives reform efforts as inadequate to deal with the product that needed to be reined in, credit default swaps, and subject to evisceration depending on how various details were sorted out. And if the types of contracts that wind up being covered are reasonably broad, the new derivatives clearinghouse […]
Read more...One of the minor aspects of the econoblogger session with the Treasury on Monday (more on that shortly) is that several of the invitees said something along the lines of, “You guys did a great job in the crisis.” What is disconcerting is how this view has now become conventional wisdom, despite the panicked Fed […]
Read more...This post first appeared on August 27, 2007 Recently, we’ve noticed a new theme among economics writers: Extreme Measures. Commentators have looked toward the end of the road we are on and fear it leads to a precipice. Hence the calls for radical course correction. Paul Krugman and Bill Gross of Pimco, each of whom […]
Read more...By Satyajit Das, a risk consultant and author of Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2010, FT-Prentice Hall). In his “Ode on a Grecian Urn”, the English Romantic poet John Keats declared that “beauty is truth, truth beauty”. In derivatives, its seems transactions may be […]
Read more...This post first appeared on August 23, 2007 Part of the hangover that followed the dot-com bubble was rampant accounting fraud. Before then, accounting chicanery was virtually unheard of in Fortune 500 companies. It instead cropped up at high fliers with loose controls and/or overly aggressive cultures (remember Zzzz Best? Miniscribe?). But in 2002, it […]
Read more...By Yves Smith and Tom Adams, an attorney and former monoline executive Update and correction 4:45 PM: We owe an apology to readers and to Louise Story of the New York Times, for an apparent error in our analysis. We have been informed that, remarkably, there were two separate Pyxis vehicles which were issued in […]
Read more...As discussed in ECONNED and on this blog, clearinghouses are not a solution to the systemic risk posed by credit default swaps, since there is no way to have a CDS counterparty post adequate margin and have the product be viable (to put it more simply, adequate margin make CDS uneconomic). So for CDS, the […]
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