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...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...In “GAO: Consultant Conflicts May Slash Pension Returns,” CFO.com reports on a GAO study that looked into the performance of defined benefit pension funds that used consultants that had undisclosed conflicts of interest. The analysis found that the funds that relied on these advisors had lower investment returns. Their annual results were 1.3% lower on […]
Read more...James Hamilton of Econbrowser, in “CDOs: what’s the big deal?” weighs in on the question of what went wrong in the CDO market. He makes a point I haven’t seen stated as clearly anywhere else, namely, some CDO tranches may have been been likely to lose money from the get-go: The benign view of CDOs […]
Read more...As readers may know, I sometimes find marked differences in how the Financial Times and the Wall Street Journal report the same story, with the FT typically doing a much better job. In this case, I was underwhelmed by both papers’ coverage, but together they conveyed some useful information. Federal banking regulators (including credit union […]
Read more...In a move intended to restore confidence, Bear Stearns has sidelined former asset management head Richard Marin (he remains as an advisor) and has brought in Jeffrey Lane, vice chairman of Lehman, as his replacement. Ousting Marin was pretty much required, and on paper Lane has the right stuff (Lehman is a serious bond player, […]
Read more...There’s been plenty of discussion on this blog and elsewhere of the questionable role of rating agencies, particularly regarding collateralized debt obligations. Rating agencies are slow to downgrade weakening credits (if you are in the debt business, this is very old news), suffer from acute conflicts of interest in rating CDOs (they are a de […]
Read more...Another day, another subprime casualty? The Caliber hedge fund was heavily exposed to 2005 subprimes, which is a new cause for pause, since heretofore, it was the 2006 subprimes that had shown the worst performance. But now troubles are showing up in the 2005 cohort. The UK fund isn’t as big as either of the […]
Read more...For those of you who are relatively new to the complexities involved in the pricing of collateralized debt obligations (CDOs), this Financial Times article, “Worries grow about the true value of repackaged debt,” gives a good overview. Since the article is lengthy, and the first part covers largely familiar ground, I’ve excerpted the second half. […]
Read more...An solid article by John Cassidy in the New Yorker, “Hedge Clipping,” on the work of former equity derivatives trader turned academic Henry Kat, who researched hedge fund performance extensively and concluded 80% of them fail to earn their handsome fees (in industry jargon, whatever alpha they generate, which is the excess return due to […]
Read more...An article in the Financial Times, “High risks see super-rich pull away,” reports on a Merrill Lynch/Cap Gemini study that concludes that the super rich ($30 million or more in investable assets) are getting richer even faster than the merely rich ($1-$5 million). The world’s 100,000 “super-rich” last year extended their lead over the merely […]
Read more...Credit Slips highlighted a recent Hudson Institute paper by Joseph Mason and Joshua Rosner, “Where Did the Risk Go? How Misapplied Bond Ratings Cause Mortgage Backed Securities and Collateralized Debt Obligation Market Disruptions.” It’s an excellent piece of work, and I recommend it to anyone who wants to understand more about the risks of mortgage […]
Read more...A good post from John Hussman at Seeking Alpha. He thinks we are on the verge of a sharp and overdue correcttion: In the microscopic focus on day-to-day fluctuations in the market, it is easy to overlook how unusual — specifically, unusually unfavorable — current market conditions are from a long-term historical perspective. The S&P […]
Read more...It continues to be lively on the Bear Sterns front. As readers doubtless know, two Bear Stearns sponsored hedge funds run by Ralph Cioffi that focused on subprimes had trouble meeting margin calls and went into liquidation. On the one hand, the Wall Street Journal appears not to be putting it on the first page […]
Read more...A good article in the American Prospect by Barbara Dreyfus gives an overview of the state of play in the hedge fund industry and reviews the causes (considerable) for concern. The article is very much for the generalist reader and misses some points that are important (for example, the role of leverage in most hedge […]
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