Category Archives: Risk and risk management

Merrill Analyst: Bear Likely to Salvage Second Hedge Fund

Merrill Lynch analyst Guy Moszkowski confirms our views of the last few days, that Bear Stearns will probably have to orchestrate some sort of orderly wind-up for its second hedge fund, the High-Grade Structured Credit Enhanced Leveraged Fund. For those who have not been following this story closely, Bear had two funds, both managed by […]

Could Bear Stearns Fail?

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 […]

Bear Stearns Investor Presentation: "Limited Subprime Exposure"

By happenstance, I came across a document, “Fixed Income Overview” from a May 29, 2007 Bear Stearns Investor Day presentation by Jeff Mayer, Co-Head of Global Fixed Income, and Tom Marano, Global Head of Mortgages and Asset Backed Securities on the Bear Stearns website. It’s a fascinating bit of reading and some parts are particularly […]

Bear Stearns and the Vagaries of Models

We had wanted to write about the role of models and more important, model assumptions in the ongoing Bear Stearns hedge fund debacle, and Gretchen Morgenson of the New York Times, in her story, “When Models Misbehave,” provided some useful intelligence. With all due respect to Morgenson, while she touches on some dimensions of the […]

Bear Stearns Hedge Fund Fallout Continues

In case you missed it, the US stock market was rattled by the continuing aftershocks of the Bear Stearns subprime-related hedge fund fallout, with the Dow down 185, and Bear itself was down in line with the Dow (both fell 1.4%, although Bear was up slightly in the aftermarket at this hour). Now the odd […]

Gloomy Reading From the Economist on Subprime Prospects

The Economist takes a detached, often ironic, tone in its articles. So when one reads a piece that exudes worry, as this week’s “Bearish Turns” does, it’s noteworthy. The piece recites a litany of likely developments in the credit markets, all negative: the indeterminate state of the Bear Stearns subprime hedge funds; the near-certainty of […]

On Valuing CDOs

A solid piece, “Collateral value thrust to the fore by woes at Bear Stearns,” by capital markets editor, Gillian Tett of the Financial Times. It’s inherently difficult to value assets that don’t trade often (think of art), yet dodgy CDO paper has already been valued as colleteral so loans could be made against it. Some […]

Central Bankers Frustrated at Their Lack of Influence

OK, the headline may be exaggerating, but not by much. A Bloomberg article titled, “Bernanke, Trichet Turn to BIS as Markets Ignore Risk,” discusses how central bankers are finding the Bank of International Settlements an increasingly important forum for exchanging ideas and intelligence. What is distressing yet not surprising is the central bankers’ acknowledgement of […]

The Bond Market Hath Spoken (But a Lot of People Aren’t Listening)

I know we are in the midst of a classic pattern, but it is still mystifying to watch it operate. At the end of a cycle, bonds start to decline in price before the equity market starts to fall. One would think that this sequence was sufficiently well established that the time lag between the […]

"The Asian Crisis After Ten Years"

Below is an excellent post by Barry Eichengreen, Professor of Economics and Political Science at UC Berkeley, at the new blog VoxEU. The post posits that the biggest risk to Asia is an asset crash, and looks at America’s experience during its industrializing phase to see what lessons might be learned. He determines that whether […]

"What Hedge Funds Risk"

A good article in the American Prospect by Barbara Dreyfus gives an overview of the state of play in the hedge fund industry and reviews the causes (considerable) for concern. The article is very much for the generalist reader and misses some points that are important (for example, the role of leverage in most hedge […]

CDOs: Whistling in the Dark

We have mentioned before that the CDO market, a dark, murky, but rapidly growing part of the financial markets, is looking dodgier by the day. A brief primer: CDOs resemble other structured credits, like mortgage backed securities, in that they are structured into tranches of varying credit quality and maturities. The top tier is often […]

Troubled Bear Stearns Hedge Fund May Be Liquidating

When the story broke of trouble at a Bear Stearns hedge fund, the High-Grade Structured Credit Strategies Enhanced Leverage Fund, that led it to auction $4 billion of its holdings to raise cash, we speculated that this might wind up being the beginning of a liquidation. That scenario now appears likely. The Wall Street Journal […]