Category Archives: Investment banks

Wall Street Increasingly Reliant on Asset-Backed Securities

This Financial Times article, which describes the growing role that asset-backed securities play in investment bank profits, comes as no surprise. Not only are these products significant in terms of total revenues, but they are more profitable than the norm for these firms. But connect the dots: Wall Street is one of the biggest funding […]

FT Warns of Profligate Lending and Deteriorating Standards

Unlike its US counterparts, the Financial Times has consistently been on top of the various unsavory elements of the credit market bubble: the near disappearance of risk premia, the growth of leverage on leverage, the lack of investor sophistication. A piece by John Plender does a very good job of connecting some of the dots […]

More Signs of Frothiness in the Debt Markets

Although it’s the Dow’s new highs that get the headlines, the really speculative action is taking place in the debt markets. As we have discussed in past posts, lenders and bondholders have abandoned their customary caution and are accepting yields that many feel are inadequate for the risks involved, and are also waiving customary covenants, […]

BIS Warning on Hedge Fund-Investment Bank Relationship

The Financial Times appears to have scooped the Wall Street Journal, Bloomberg, and the New York Times on a Bank of International Settlements report due out today, which says that investment banks are too cozy with hedge funds and that isn’t very good for the financial system. The BIS report calls for greater disclosure of […]

Wall Street’s Not So Clever Subprime Acquisitions

Last February, we questioned the wisdom of the headlong rush of Wall Street firms such as Merrill Lynch, Morgan Stanley, and Barclays to acquire subprime lenders, since it appeared that the distress in the market foretold not only a fundamental contraction but also more stringent regulation. Our skepticism appears to have been warranted. This weekend’s […]

Rating Agencies: The Weak Link?

If a terrorist were to blow up Moodys, S&P, and Fitch, it would have a devastating impact on the financial markets. Rating agencies play a indispensable role in the debt arena. Many investors are required to consider bond ratings in their investment decision making process. Insurance companies, for example, are required to hold either all […]

"Ratings Agencies Could Be Liable For Losses"

Ooh, now things are getting interesting. The subprime meltdown is moving into the usual “pin the liability on someone” phase, which is proving to be complicated, given that many of the logical suspects, meaning the original lenders, have declared bankruptcy (and in the case of mortgage broker New Century, the IRS has first dibs, since […]

Is There a Precedent for Mortgage Investor Liability?

Media interest in the subprime problem has died down. Subprimes are now in that same zombie category of ongoing problems that are unpleasant and unresolved, like Katrina victims and Iraq turning military service into involuntary servitude. In poking around, we found an intriguing item that likely won’t get the attention it warrants. Readers may recall […]

Abby Joseph Cohen: The Stock Market Shill Returns

For those of you who were market watchers in the 1990s, Goldman Sachs’ investment strategist Abby Joseph Cohen always made to case to buy stocks. She was so well regarded that a bullish pronouncement would move the market. And since the market for the most part appreciated handsomely, she looked brilliant, until, of course, she […]

Lewis Ranieri on the Subprime Mess

Thanks to Tanta at Calculated Risk, we have a rush transcript from a presentation by Lew Ranieri at the Milken Institute conference on financial innovation. Ranieri is credited with creating the mortgage backed securities business, has continued to be active in the industry, and has sounded warnings on subprimes. I found three points to be […]

FT vs. WSJ on Financial Stability Report by Bank of England

While most US readers believe that the Journal’s ideological bias is limited to its editorial pages, we have repeatedly seen (and commented on) skewed reporting as well. Specifically, the Journal tends to put a positive spin on economic (as opposed to company-specific) reporting. Today’s object lesson is the Bank of England’s latest edition of its […]

An Excellent Primer on Risk Management (and Its Shortcomings)

John Kay in the Financial Times gives the best layman’s explanation I have seen of the most widely used risk management approach in financial institutions, value at risk (VAR) and tells us what’s wrong with it. In a nutshell, VAR assumes a normal distribution of events (aka a bell curve). The problem is that prices […]

Market Failure II: Corporate Bankruptcy

In her Sunday New York Times column, “‘For Sale’ May Mean ‘You Lose’,” Gretchen Morgenson notes in passing that bankruptcies don’t get as much attention as sexier mergers or IPOs (and it’s confirmed by the dearth of comment on the usual suspect sites in the blogsphere). But there is a lot of money made in […]

"Is the Fed’s Impact Waning?"

We’ve argued several times that the Fed isn’t what it used to be (see here and here and here), so we are gratified to see other commentators take up the theme. The headline the title of a post by Russell Wood at Seeking Alpha. It makes some important observations: the Fed regulates banks only, and […]