John Gapper, in a Financial Times comment, “How Bear Stearns Put Itself First,” argues that even though Bear Stearns’ decision to step in to manage the unraveling of its two troubled hedge funds was self-interested, it was also bad for the hedge fund industry and for the CDO market. I don’t agree with Gapper, and […]
Read more...In “Bear Stearns Investors Await Tally on Losses,” the Wall Street Journal reports that investors in the two troubled Bear Stearns hedge funds won’t get end of May results until July 16. While this delay is probably crazy-making for fund holders, Bear is no doubt erring on the side of conservatism. Recall that the High-Grade […]
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...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...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...Apologies for being a tad late on this item, an article by the Financial Times’ lead editorial writer Martin Wolf, “Risks and rewards of today’s unshackled global finance.” Power went down in parts of Manhattan today, which put a crimp in my schedule. So I will be briefer than I might otherwise be. I was […]
Read more...We’re shocked,shocked! The state of Massachusetts has filed a complaint that accuses UBS of giving kickbacks (without using that word) to hedge fund clients: cheap rent, personal loans at below-market interest rates, and other goodies. An interesting question is whether the charge regarding below-market rent referred to incubators. Some prime brokers will give fledgling hedge […]
Read more...All the usual suspects are reporting that the SEC is planning to investigate the failed Bear Stearns hedge funds and CDOs generally. The Financial Times provides a succinct account: The Securities and Exchange Commission on Tuesday said it had initiated a broad-based investigation into the troubled subprime mortgage market. Christopher Cox, chairman of the SEC, […]
Read more...Warning: this post is only for those with sound constitutions. Tim Lee, head of a financial economics consultancy, tells us in a Financial Times article what a carry trade unwind will look like (answer: very nasty) and what it would take to prevent it (the Japanese have to allow a high enough level of inflation […]
Read more...By way of background, Bill Gross is something of a legend in the fixed income world. He founded Pimco, one of the biggest and most highly respected fixed income firms, with nearly $700 billion under management. Gross is also its chief investment officer and is considered very savvy (and as important for the purposes of […]
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...Ooh, when it rains, it pours. First Bear, now this. However, readers of this blog will know we have been posting for some time on rampant liquidity, inadequate risk premia, lax lending, and overvalued assets every where you look. We thank Michael Panzner of Financial Armageddon for pointing out this story from the UK’s Telegraph. […]
Read more...The Wall Street Journal, in “Bear’s Stock is Acting Like It’s Name,” adds surprisingly little of substance to what’s already been reported on Bloomberg (see here and here), but the story’s downer tone is the last thing Bear needs at this juncture. One element that has been missing from the mot press coverage but picked […]
Read more...Bloomberg is keeping up a rapid pace of stories on the Bear Stearns hedge funds. Bear has apparently found some buyers for the assets of its High-Grade Structured Credit Leveraged Fund, the one for which it put in place a secured credit facility to permit an orderly workout. This was not an official announcement by […]
Read more...Before readers get too excited, let me be clear: this post is to discuss what circumstances might lead Bear Stearns to cease to be an independent organization. It is not an attempt to forecast the likelihood of that taking place. Despite their considerable prowess, investment banks are fragile organizations. It took only one major scandal […]
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