Category Archives: Regulations and regulators

An Accident Waiting to Happen: The $1 Trillion Leveraged Loan Market

A new article in Bloomberg gives a well-researched overview of a mess-in-the-making that regulators are choosing to ignore: the leveraged loan market. For newbies, “leveraged loans” means “risky loans to big companies”. For the most part, they fund private equity buyouts and restructurings. The juicy fees on these financings, 1% to 5% of the amount raised, versus an average of 1.3% for junk bonds, is a big reason why none of the incumbents is particularly eager to change a market that is working just fine for them in its current, creaky form.

Who Wins in the Financial Casino?

I received a message last week from a savvy reader, a former McKinsey partner who has also done among other things significant pro-bono work with housing not-for-profits (as in he has more interest and experience in social justice issues than most people with his background). His query:

We both know that financialization has, among so many other things, turned large swaths of the capital markets into a casino

Here’s my thought/question: is there a house?

The common wisdom is that the ‘house wins’ in casinos.

So, who or what was really the ‘house’?

Ilargi: Subprime is Back With a Vengeance

Yves here. While it remains an open question as to whether frenzied efforts to push investors even further out on the risk limb will come to fruition, the fact that so many measures are underway looks like an officially-endorsed rerun of early 2007. If the Fed indeed raises rates in the not-insanely-distant future, getting into subprime and other speculative credits is a quick path to losses. But even if the Fed and other central banks remain super-dovish, risky borrowers can and will go tits up independent of interest rates. Credit risk is not the same as interest rate risk, but the inability to get any return for the latter is producing an extreme underpricing of the former.

Maggie Mahar: 1/3 of Medicare Spending is Wasted

Yves here. Maggie Mahar’s post focuses on a pet peeve of mine, namely, the way treatments and procedures are overprescribed in the US. She includes a favorite example, that of colonoscopies.

However, I take issue with Mahar’s conclusion, that waste in Medicare means that Medicare for all should not serve as a way to get to single payer (even assuming that issue can be opened up again in the next decade).

The Fed Fails, Um, Does Irony

The Fed routinely makes decisions and pursues policies which result in it achieving the opposite of its stated goals and forecasted outcomes.

Has Apple Pay Just Put Apple in the CFPB’s Crosshairs?

I strongly suggest you read Georgetown law professor Adam Levitin’s new post on why he believes Apple’s newly announced Apple Pay service puts Apple under the CFPB’s jurisdiction but virtue of having made itself a regulated financial institution. And Levitin means all of Apple’s consumer services, not just Apple Pay. He believes that Apple is […]

Nomi Prins on the Credit Derivatives Systemic Risk Bomb

Yves here. Former Goldman managing director turned journalist Nomi Prins spoke on RT about unresolved systemic risk issues, most importantly, credit derivatives.

Tony West’s Departure Ends Era of Pathetic Bank Settlements

With the imminent departure of Tony West from the Justice Department, we can assuredly close the book on this latest round of financial fraud settlements. West was a co-chair of the vaunted task force known as the RMBS Working Group: of the original members, only U.S. Attorney for Colorado John Walsh and New York Attorney General Eric Schneiderman remain. And West was the point person inside the Justice Department for the JPMorgan, Citigroup and Bank of America cases (“Top Nemesis of Big Banks,” screams the New York Times for some reason).

Gillian Tett’s Astonishing Defense of Bank Misconduct

I don’t know what became of the Gillian Tett who provided prescient coverage of the financial markets, and in particular the importance and danger of CDOs, from 2005 through 2008. But since she was promoted to assistant editor, the present incarnation of Gillian Tett bears perilous little resemblance to her pre-crisis version. Tett has increasingly used her hard-won brand equity to defend noxious causes, like austerity and special pleadings of the banking elite.

Today’s column, “Regulatory revenge risks scaring investors away,” is a vivid example of Tett’s professional devolution.

New Zealand Companies Office’s $612Mn Money-Laundering Snooze

The Organised Crime and Corruption Reporting Project recently (21st August) published one of their periodic investigations, concerning a rather large moneylaundering scheme: Call it the Laundromat. It’s a complex system for laundering more than $20 billion in Russian money stolen from the government by corrupt politicians or earned through organized crime activity. It was designed to not only […]

Yves Talks With Zephyr Teachout, Challenger to Cuomo in New York Democratic Primary

Zephyr Teachout, with her running mate Tim Wu, are running against Democratic party fixture, the State governor Andrew Cuomo, and his lieutenant governor nominee Kathy Hochul.

Ballooning Finance: How Financial Innovation Produces Overgrowth and Busts

Yves here. It’s a welcome surprise to see economists devise a model that delivers generally sensible results. Here, three economists looked at how financial innovation leads to an bloated financial sector as well as greatly increasing the risk of meltdown.