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 […]
Read more...In case you haven’t figured it out, Ed’s post on Sweden highlights an important and troubling development. It seems that central banks have locked themselves into “if the only tool you have is a hammer, every problem looks like a nail” behavior with the move to negative rates. Since they are best able to dispense […]
Read more...Michael Lewis has a generally very good piece in Vanity Fair on the AIG Financial Products mess, filing in some bits that were missing from the equation. He does go a bit overboard in saying nice things about Jake DeSantis, the man who wrote the New York Times “Dear AIG: I Quit!” op ed. To […]
Read more...There are times I think I am hopelessly naive. For three years in the early 1990s, I had a cutting-edge Chicago-based derivatives firm, O’Connor & Associates, as a client. They had 750 employees and no customers, at least initially, which gives you an idea of the scale of their business. O’Connor did statistical arbitrage, which […]
Read more...Submitted by Knute Knutson: As I imagine many of your are, I’m an avid reader of Gillian Tett’s Financial Times columns, I therefore purchased her recent book, Fool’s Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe, shortly after its release. Ms. […]
Read more...One of the things that has intrigued me about the financial crisis is that it is pretty clear that looting took place at the high end of the financial services industry, yet few have called it by that name, in part because it has been difficult to identify the mechanisms by which it occurred. Looting, […]
Read more...Submitted by Edward Harrison of the site Credit Writedowns. I was on the BBC yesterday talking autos and my commentary was almost entirely political. So, as we await the likely General Motors bankruptcy, I think it bears discussing how political this process has been and will continue to be. General Motors is a monster company […]
Read more...It only takes opposition by 10% of the bondholders to stymie an out-of-court restructuring of GM. The FT believes that there are enough bondholders who, via being net short GM bonds via credit default swaps, have good reason to block a negotiated outcome and force the automaker into bankruptcy. And that poses risk to the […]
Read more...Benjamin Friedman, in a review of George Akerlof and Robert Shiller’s Animal Spirits, makes an interesting observation: As in past financial declines, what is sorely missing in this discussion is attention to what function the financial system is supposed to perform in the economy and how well it has been doing it. Today attention is […]
Read more...One of the arguments apparently being made in Washington by those who oppose regulation of credit default swaps is that it would reduce liquidity and that of course would be a terrible thing. My impression is that no one has endeavored to put metrics on this assertion (as in how and where liquidity would be […]
Read more...As readers may know, I view the credit default swaps market with more than a bit of skepticism. I can point to cases where it has caused harm: 1. Bagholders. Dealers claim that CDS are really not bad at all because they haven’t been taking risk, oh no, they hedge their position with offsetting swaps. […]
Read more...James Kwak, discussing a recent Bernanke speech defending financial innovation and a Ryan Avent post parsing it, underscored Avent’s observation that Bernanke had trouble coming up with an example of the sort that the financial services had in mind these days (ie, novel products making use of derivatives and other risk slicing, dicing, and distribution […]
Read more...I suppose I should take anything said by Goldman in general, and its CFO David Viniar, with a fistful of salt. This is the man who during the October-November meltdown, attributed the poor performance to the fact that they were seeing “25 sigma events, several days in a row.” That show such manifest ignorance as […]
Read more...I’m late to this good post from Steve Waldman, which has some provocative ideas about how stringent bankruptcy laws should be. He contends that the current regime is too friendly to creditors, which means they can and do make overly optimistic assumptions about recovery, which in turn makes them too ready to take risks. We’ve […]
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