Below is a guest contribution by reader Michael Dokupil. Michael points out that ratings agencies and banks are incented to support a market in so-called toxic assets rated triple-A because of a strange regulatory arbitrage. Basel II rules allow a bank to keep much less capital on hand to support AAA assets than is necessary […]
Read more...By Satyajit Das, a risk consultant and author of Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives: One year ago, AIG was brought to the brink of bankruptcy as a result its exposure under credit default swaps (“CDS”) (a form of credit insurance). Asset backed securities and Collateralised Debt Obligations […]
Read more...Reader Scott pointed out this BankImplode story, “Exclusive – Wells Fargo’s Commercial Portfolio is a ticking time bomb.” I can’t verify it, but it sounded plausible and contained some juicy details: Wachovia, which Wells purchased last fall as it teetered on the brink of collapse, was so desperate to increase revenue in the last few […]
Read more...The Financial Times tonight reports that Goldman CEO Lloyd Blankfein made “startling” remarks in Germany, for instance, that a lot of banking activity is rather thin on redeeming social value. Oh, and he admitted bankers might be paid too much, too. Gee, with revelations like that, what might he to ‘fess up to next? That […]
Read more...Clearly, the spin is in. As a post earlier today discusses, the Financial Times is running a story that claims that the Fed made money on its rescue programs, then slips in all the tidbits in the body of the article to let discerning readers know that the reporter understands that the analysis is utter […]
Read more...I have a good deal of respect for Gillian Tett, but I disagree with her analysis in a Financial Times piece today: A decade ago, it was fashionable for Western consultants, bankers and business people to decry Japan’s domestic service industry. For Japanese business sectors, ranging from milk production to financial broking, have long been […]
Read more...It was mathematician Benoit Mandelbrot who first discovered in 1962, by crunching 100 years of cotton trading data, that markets have “fat tails” or more extreme risks than the standard models predict. A less oft cited finding of Mandelbrot’s was that markets have memory, in colloquial terms. Calm days tend to be followed by calm […]
Read more...Served by Jesse of Le Café AméricainSome controversy was triggered over a line of questioning this morning during Ben Bernanke’s testimony before Congress, as reported on some of the top financial blog sites Zerohedge and Naked Capitalism. We read them both daily and are often envious of the depth and breadth of their expertise. Congressman […]
Read more...For those who have not come across him, Satyajit Das is a hard core derivatives expert, having worked with them in enough markets and enough vantage points to very well versed, which in his case means thoroughly jaded. His book for laypeople, Traders, Guns, and Money. manages to be very informative, somewhat geeky, yet engrossing […]
Read more...Submitted by Edward Harrison of Credit Writedowns. I got a tip from a friend Andrew about a sale of assets by Wells Fargo (WFC) which raises a number of interesting questions. He sent me the following 14 July article from the Milwaukee Business Journal. Wells Fargo sold $600 million in mostly non-performing subprime loans to […]
Read more...Nicholas Nassim Taleb and Mark Spitznagel have a provocative comment up at the Financial Time today, In some ways, it is isn’t surprising for those familiar with his work on risk and uncertainty. On the other hand, it is an eye opener to see what an internally consistent, reasonably comprehensive solution to our mess looks […]
Read more...We have a juicy tidbit on the wires tonight. The Department of Justice is conducting an investigation into whether Markit’s clients traded on its research prior to its being made public, As much as I would love to see the credit default swaps market reined in, or better yet, shut down, this move is puzzling. […]
Read more...While recent news reports have tried to put a cheery face on the AIG bailout as asset sales are moving forward haltingly, the end game appears no better than it did some months ago, at least according to Citigroup. Note that the amount authorized for bailout is $180 billion,”only” $134 billion has been committed to […]
Read more...Submitted by Edward Harrison of Credit Writedowns. The Online Merriam-Webster Dictionary describes alchemy as “a power or process of transforming something common into something special” or “aiming to achieve the transmutation of the base metals into gold.” Well, it seems Morgan Stanley is engaging in some financial alchemy because it is about to trade near-junk […]
Read more...Goldman and Barclays are out touting old structured credit technology, apparently collateralized debt obligations, and claim they have been tamed and repurposed and are now virtuous. I am skeptical of these assertions, and welcome informed reader comment. CDOs in particular were leverage on leverage vehicles, and indeed, that seems again to be the reason for […]
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