City bonus round surprises on the upside FT Alphaville. Um, that means they were paid too much.
WSJ recommends letting the poor freeze to death to combat global warming RFK Action Front
Will the Mortgage Industry Fix the Mortgage Mess Itself? A Look at Project Lifeline Adam Levitin, Credit Slips. A post I wish I had time to feature separately. Basically the timetable of foreclosures in many states means the 30 day freeze is useless.
Totally Spent Robert Reich, New York Times
Hackonomics The Big Picture. A well-executed evisceration of a New York Times op-ed piece.
Systemic risk rises: correlation hits new highs FT Alphaville (hat tip Felix Salmon). The last time this happened, May of last year, the Fed noticed, and dismissed correlation as a sign of systemic risk. The bond market reversal started with a dramatic shift in Treasury trading in early June that participants saw as a sea change and marked the beginning of the credit contraction.
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“The last time this happened, May of last year, the Fed noticed, and dismissed correlation as a sign of systemic risk.”
Well, perhaps they should know better now. Last may was a mild alert but you know what happened shortly afterwards [bear stearns funds blowing up].
The summer correlation crisis was the worst since the 2005 one. And since the fall we have been in a permanent state of correlation crisis far worse than the 2005 one.
What we know is that whatever the Fed has done it has had no effect on credit spreads or on restoring confidence in the credit markets. The correlation indicator has been spot on since the beginning of this crisis.
That last – in current markets perhaps utterly obvious – point is worth one final tangent. In a way it cuts right to the heart of the whole subprime fiasco. How did CDO tranches get AAA ratings? Because most rating models don’t – or didn’t – have a correlation metric.
A Triple-A CDO tranche rating reflects the chance of say – 50 – totally unlinked, totally individual, idiosyncratic, defaults occurring, each with its own exceptional circumstances. Of course that is triple-A, because it would be very unlikely to happen. What it doesn’t reflect is a slew of defaults as a result of a system-wide trend or pattern of behaviour – like subprime lending.
Hi Yves! Thanks for the link! I really like the work you’re doing with your blog!