Category Archives: Regulations and regulators

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 […]

Bear Death Watch: Why It Failed

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 […]

How Will Washington Finesse a Bailout?

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 […]

The Administration’s Cosmetic Credit Market Reform

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 […]

Barney Frank Threatens to Kill Muni Bond Insurance Business

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 […]

Will Bank Recapitalization Require US Government Sponsorship?

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. […]

No Exit: Will "A Short Financial Crisis Become a Long One"?

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 […]

On Krugman’s Worries and the Breakdown of the Securitization Model

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 […]

"Vicious spiral haunts debt markets"

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 […]

Honey, I Blew Up the Bank

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 […]

"The Mother of All Writedowns"?

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. […]

Interbank Lending Squeeze May Be Back

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 […]

Credit Market Woes: Don’t Count on Foreign Rescuers

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 […]