As I am sure you all know by now, Bear Stearns started coming spectacularly unglued last night, and called JP Morgan, who in turn tapped the Fed, who sent examiners who stayed at the firm all night. In the morning, a plan was announced by which the central bank would assume the risk of lending […]
Read more...Gillian Tett ponders the conundrum that, given the dearth of logical suspects to replenish US bank equity if credit markets continue to deteriorate, the Federal government will have to step into the breach. But bailouts are profoundly unpopular even in the best of times, and an election year is a particularly ill-fated juncture for this […]
Read more...Never expect a group with members ideologically opposed to regulation to come up with a wide ranging reform program, no matter how badly one is needed. An individual can have a Nixon-goes-to-China moment, but not a committee. Later today, no doubt with great fanfare, Hank Paulson will announce the plans devised by the President’s Working […]
Read more...No, Barney Frank, head of the House Financial Services Committee, did not say in so many words that he wanted to end the municipal bond insurance business. But that’s the implication of the ultimatum. He told the rating agencies and the insurers that they have a month to make the standards applied to the ratings […]
Read more...The Wall Street Journal on Monday said US regulators have been urging banks to raise more capital. John Dizard argues in the Financial Times that banks need to do so posthaste: We don’t, however, have a lot of time to avoid the self-reinforcing contraction of the financial system that is the precursor of a depression. […]
Read more...By happenstance, three articles in the Financial Times provide useful, if disheartening, triangulation on the credit crisis. In sum, the markets are a mess, policymakers don’t agree on what to do, and there may be nothing they can do except make matters worse. Last week was by any standards a bad week, with the Fed’s […]
Read more...Paul Krugman usually has enough important topics to occupy himself, like the sorry state of health care, income inequality, tax policy, Bush Administration offenses du jour, that he rarely gets around to matters financial. But stress in the markets has again come to the fore, so Krugman is taking a serious look. Not surprisingly, he […]
Read more...Gillian Tett in the Financial Times points out a nasty conundrum. For the credit markets to get back to some semblance of normalcy, prices of instruments have to fall their clearing price. Only a very few will buy before a bottom has clearly been reached. But reaching liquidation prices will entice the capital that has […]
Read more...No, this isn’t a confessional by Jerome Kerviel. Instead, it’s a few excerpts of a very good paper by the Senior Supervisors Group (regulators from France, Germany, Switzerland, Britain and the United States) who went poking around 11 major financial institutions to find out how they botched their risk management so badly last year. The […]
Read more...This tidbit, under the suitably cautious heading, “Rumor Mongering,” appeared on Across the Curve. I’ve found that blog to be sensible, but like journalists, bloggers are only as good as their sources. From Across the Curve: I do not believe that I have posted many rumors on this site since i began on January 2. […]
Read more...The equity/credit market divergence continues. Bloomberg reports that money market rates in Europe are rising, suggesting increased pressure in the interbank funding market: Money-market rates for euros and pounds climbed to the highest since mid-January, signaling the global squeeze on short-term bank lending may be returning. The three-month London interbank offered rate, or Libor, for […]
Read more...John Dizard in “Disquiet on the western front of the credit world,” discusses the politics of the credit crisis, depicting two opposed absolutist camps: those who’d have everyone take their lumps now, no matter how bad they turn out to be, versus those who think preventing a nasty recession is all-important, even if it means […]
Read more...Willem Buiter reads two reports issued on the Northern Rock meltdown, and in his Olympian style, finds them wanting. While Northern Rock was a British crisis, its character was similar to those faced by a host of US and European institutions. The Rock held long-dated assets that it funded in short-term markets, a routine banking […]
Read more...According to the Financial Times, number two bond insurer Ambac has decided not to split its operations into a muni insurance business and a structured finance business. Note that we said on February 19 that we didn’t see how Ambac could possibly raise the $3 billion it sought ($2.5 billion in equity and $500 million […]
Read more...MBIA is revealing itself to be even more of a garbage barge than many cynics thought. On February 25, in a statement which went largely unnoticed, new MBIA CEO Jay Brown had “questions” about the 2007 preliminary financial results announced by the previous regime, and hadn’t signed off on the financial statements. That’s a big […]
Read more...