After the Fed, ECB,, Bank of England, and other central banks took unprecedented measures over the last month to restore liquidity and recapitalize banks, Nouriel Roubini sounded slightly less gloomy. He had deemed that the authorities has avoided a systemic financial meltdown, but a nasty, protracted recession was in the offing. It appears that Roubini […]
Read more...Steve Waldman has a longish and very useful post “I sing the praises of financial innovation” in which he seeks to identify some good and bad financial innovation (I very much support Martin Meyer’s observation that, for the most part, what is called financail innovation is finding new technology that makes legal what was illegal […]
Read more...In yet another sign reluctance to suffer counterparty risk, banks that only recently were aggressive in booking lucrative over the counter derivative trades are now tripping head over heels to shift them on to exchanges (note that the exchange, rather than the bank, would then monitor counterparty performance and be responsible for making margin calls […]
Read more...Britain is moving quickly to use the its new bank rescue facility, which was increased from £59 billion to £75 billion. Note the article suggests that stock market trading may be suspended in connection with the rescues. From the Times Online (hat tip reader Tim): The government will tomorrow launch the biggest rescue of Britain’s […]
Read more...Now I am really going to rant. What is going on here? The financial system is on the verge of a meltdown, we have the Lehman credit default swaps settlement tomorrow, which is a huge test that has investors on Defcon One. Markets are as unhinged as they can be and still be functioning around […]
Read more...The International Swaps and Derivatives Association reported that the notional amount of credit default swaps outstanding fell from $62 trillion to a bit under $55 trillion as dealers worked to eliminate offsetting trades. This is a step forward, although it is hard to assess how significant it is. While the reduction in systemic risk is […]
Read more...One of the more depressing bits of emerging conventional wisdom is the notion that the financial system took on “too much risk” in recent years. I think it is equally accurate to suggest that the financial system took on too little risk. Consider the risks that were not taken during the recent credit and “investment” […]
Read more...The time has come to announce the formation of the Banana Republic Club. Membership is open, with the sole requirement being that nominees correctly discern behaviors in advanced economies that resemble those of corrupt developing countries, which for sake of convenience are referred to as banana republics. Members are eligible to receive a Carmen Miranda […]
Read more...With the financial system on the exam table, it has been more than a bit troubling, that certain questions are neglected in serious academic/policy debates. The discussion of possible remedies focuses on regulatory solutions, everything from requiring mortgage brokers to be licensed to increasing financial institution capital requirements and having much greater harmonisation, as the […]
Read more...Mohamed El-Erian, co-CEO of Pimco, usually strikes a cool, rational tone in his periodic comment pieces in the Financial Times. Today’s article, “Traversing wild market swings,” is a noteworthy departure. Or maybe it isn’t. El-Erian keeps to his detached, analytical style,but the guts of his message is so blunt that the packaging is secondary: Successful […]
Read more...I’m a bit perplexed at a Gillian Tett piece in the Financial Times in which she is shocked, shocked that managers didn’t heed warnings from subordinates that risk models weren’t all that they were cracked up to be. Her article wouldn’t seem odd, except it focuses on a really basic shortcoming, namely that many models […]
Read more...Roger Ehrenberg has a great post today, “Straight-talk on FAS 157: Blackstone and their Banker Buddies Have it Wrong,” which I suggest you all read. Although I was taken with the entire discussion, the last paragraph caught my attention: So why do risk managers and bank managements’ so consistently make bad decisions? Probably because there […]
Read more...Satyajit Das has a very useful post, “The Credit Default Swap (“CDS”) Market – Will It Unravel?,” in which he describes some of the ways that CDS may fail to perform as expected in real world situations, ie, when companies start getting in trouble. While this work isn’t quite at the Tanta Uber-Nerd level of […]
Read more...Reader Richard Kline is providing a mini-series that was prompted by an anonymous reader who had observed that a complex systems theory view might raise doubts about regulatory policy. Financial overseers believe that liquidity is always and ever good, but that view may be naive: Perhaps a lesson to be learned here is that liquidity […]
Read more...A year ago, I found Gillian Tett, then the Financial Times’ capital markets editor, to be the single most useful financial reporter by a considerable margin. She gave insights into areas that were important but badly neglected elsewhere, such as CDOs, credit default swaps, SIVs, all well before they entered the mainstream lexicon. She was […]
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