Category Archives: Regulations and regulators

Bear Conspiracy Theories and Carry Trade Unwind

A reader sent me the link to this week’s Institutional Risk Analystics, and I am posting despite the fact that at points it undermines its own credibility. Most of the article, “Novated Bears & the Education of Ben Bernanke,” is a combination of trader gossip about the fall of Bear Stearns, some of it quite […]

Bill Gross: New Regulation Will Lower Investment Bank Profits

Bill Gross argues that tougher regulation of investment banks, particularly regarding leverage, will lower their profits. While his forecast is intuitively correct, it will also increase the propensity of professionals in non-capital-using businesses, like M&A amd fund management, to form boutiques or operate in pure-play firms subject to less oversight. From Bloomberg: Goldman Sachs Group […]

My Nomination for Lie of the Year

Yes, I know we are not even done with the first quarter, but I am highly confident this whopper will withstand the test of time. From the New York Times: Mr. Paulson is clearly taking a stand against critics who support even stricter regulations, while rejecting any notion that the crisis in financial markets or […]

Paulson’s Cosmetic, Cynical Financial Regulation "Reform"

Why is it that the media feels compelled to take pronouncements from government officials more or less at face value? By now, they ought to know that if someone from the Bush Administration is moving his lips, odds are it’s a lie. Today’s object lesson is the so-called financial services regulatory reform plan announced by […]

SEC Gives Permission to Fudge Mark-to-Market

The US is acting more and more like a banana republic with every passing day. One of the characteristics of a banana republic is that it puts out flattering-to-the-point-of-being-unreliable data about its economy and important institutions. Alert reader James Bianco pinged us about a new SEC release today and Floyd Norris of the New York […]

Robert Shiller Makes Bogus Defense of Financial Innovation

Before I put my buzz saw to work, let me make a few things clear. First, I have a good deal of respect for Robert Shiller’s work. Anyone who was willing to tell Greenspan in 1996 that he ought to be worried about asset bubbles has a good deal of foresight. Second, I am a […]

AIG: "Paulson Calls For Weaker Dollar"

A reader sent this note by AIG’s Bernard Connolly, which is surprisingly blunt for a sell-side analyst: In saying today that the housing price correction must be allowed to proceed, Paulson is in effect calling for a massively weaker dollar – athough he probably does not realise it. Of course it is true, as Paulson […]

Wolf: Free Market Capitalism Just Passed Its Peak

Martin Wolf of the Financial Times sees the Bear Stearns bailout as the high water mark of free market capitalist ideology. Staunch advocates of a light regulation, both the Fed and Hank Paulson, moved aggressively forward with a government sponsored salvage operation. Wolf says greater regulation is inevitable: the public simply (and correctly) will not […]

Bear: Did the Fed and Treasury Push Too Hard?

Andrew Ross Sorkin in the New York Times provides some important background on how the Bear deal wound up being retraded today. But he does his readers and the greater public a huge disservice by telling the story so as to flatter Wall Street. According to Sorkin, the $2 price for Bear was the Fed’s […]

Japan Says US Financial Crisis Worse Than Its Bust, Urges Government to Recapitalize Banks

The comments in the Financial Times by Yoshimi Watanabe, Japan’s financial services minister, are extraordinary. He ventured to give the US advice on its credit crunch based on Japan’s experience during its post-bubble-years banking crisis. And it’s not pretty. Why are these remarks so unusual? Consider: Most countries don’t give other countries advice on how […]

Did the Fed Prevent a Financial Chernobyl?

There are two useful but frustrating articles addressing different aspects of the extraordinary measures implemented by the Federal Reserve in the last ten days, in particular the bailout of Bear Stearns. A New York Times article, “What Created This Monster,” is very much worth reading despite its shortcomings. It attempts to say how we got […]

Extreme Measures V and VI; Drop Mark-to-Market; Beg Oil Producers to Rescue Banks

A sign of the times: we haven’t sighted an Extreme Measure since October, and here we have two in one day (note that day was Thursday; we started on this last night but there were so many news-driven items that we are getting to this only now). By way of background, an Extreme Measure is […]

Are European Banks in Trouble?

A colleague I’ve cited occasionally who has extensive contacts at the Treasury and pretty good ones at the Fed has been muttering for some time that European banks are in every bit as bad shape as US banks and he has been waiting for that shoe to drop. He also sees that as intermediate good […]

"A world addicted to easy credit must go cold turkey "

This article by Jeff Randall in the Telegraph does a nice job of looking at the causes of our credit mess and articulating implications. And he quotes my hero Paul Volcker (do you know that he stayed at the Fed fixing the economy even though his wife was very sick and he was having trouble […]

"Financial system must tap the taxpayer"

Krishna Guha in the Financial Times argues that US banks need new equity ASAP to prevent the operation of a “financial accelerator,” which is basically, just as leverage feeds on itself, so to does deleveraging: falls in prices lead to margin calls, which lead to forced selling, which lead to more margin calls. We now […]