John Authers of the Financial Times thinks the markets got a lucky break this week, and deferred a so-called Minsky moment, which he discussed in a noteworthy piece earlier. By way of background, economist Hyman Minsky observed that creditors become more lax about lending standards during times of stability. He divided borrowers into three types: […]
Read more...For those who have somehow missed it, Econbrowser does a consistent job of presenting economic data and trends in a thoughtful yet accessible fashion. And they usually have tons of charts. Menzie Chinn, an economist who has written about currencies, in “A Tipping Point for the Dollar?” gives an update in light of the continued […]
Read more...Hhhm, “orderly” seems to be the favorite word from the finance officialdom today, and we see yet another reference to systemic risk (in this case, that the SEC remains vigilant on that front). But as regards the Bear situation, the comment from the SEC isn’t much in the way of news (however, “now orderly” would […]
Read more...Reuters tells us that hedge funds that had previously steered clear of the Mexican mortgage backed bond market, deeming it to be too small, are now stepping up their investments there in the wake of US subprime problems. It won’t take much in the way of capital inflows to lower interest rates of Mexican MBS, […]
Read more...I’m a bit late to this item, from Friday’s Financial Times: “Credit crisis to worsen as banks cut and run,” which is an unusually vivid headline. The FT story describes how margin requirements for mortgage-related CDOs have been made considerably more stringent. AAA rated CDOs, which used to be haircut at 2-4% in January are […]
Read more...One thing that has been a bit mysterious to me is that, given the nervousness among prime brokers who have been financing collateralized debt obligations and evidence that these lenders are tightening credit considerably, why haven’t more hedge funds gotten in trouble by being forced to liquidate or at least partially liquidate? The Lex column […]
Read more...It’s probably a character defect, but I get wound up when I read something that is directionally correct but then discredits itself by getting important facts wrong. The latest case in point is a Huffington Post post by Eugene Linden on “The Ecology of Toxic Mortgages.” It’s a more than usually frustrating example because 1) […]
Read more...UBS’s CEO Peter Wuffli resigned, in large measure due to losses related to the closure of an internal hedge fund last May. The Wall Street Journal, in “UBS Ousts CEO Wuffli After a Spate of Setbacks,” reports: Swiss financial giant UBS AG — buffeted by a series of setbacks, including the costly blowup of an […]
Read more...As we noted earlier, a minor casualty in Bear-Stearns-hedge-fund-meltdown-induced repricing of CMOs was a mid-sized, independent-contractor broker-dealer Brookstreet Securities, which blew a hole in its balance sheet when its clearing firm repriced the assets in many of its margin accounts and issued margin calls. Tanta at Calculated Risk found out (via the OC Register) why […]
Read more...From the Financial Times’ blog Alphaville: Investors in the worse-hit of two stricken Bear Stearns hedge funds are offering to sell their holdings for as little as 11 cents on the dollar but still finding no buyers, according to unfilled trades on Hedgebay, a secondary market for funds. Vulture funds and others have been quick […]
Read more...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 […]
Read more...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 […]
Read more...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 […]
Read more...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 […]
Read more...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 […]
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