Category Archives: Credit markets

New York Times Misidentifies Main Cause of Slow Motion European Bank Run

It’s feeling like 2007 all over again. The New York Times has a bizarre and prominent story (now the lead item on its business page) on how the lack of integrated bank supervision in Europe is causing a breakdown in interbank lending. The New York Times (and the Wall Street Journal) getting it wrong when the FT gave straightforward, informed accounts was a frequent feature in the early phases of the crisis (both US papers upped their game considerably as the bad financial news increased).

Dimon Redux: Why Bank Risk-Taking = Risk Making

In case you haven’t had enough of Congresscritters lobbing softballs at Jamie Dimon, the JP Morgan CEO is appearing before the House Financial Services Committee on Tuesday. There have been a number of suitably scathing accounts of how members of the Senate Banking Committee fawned over Dimon.

As we wrote, Dimon took what is actually an indefensible position: that any bank risk taking should be permitted, so long as it will arguably do well when there is a crisis (watch for this to be broadened to merely be a bet to improve bank profits when its regular businesses are under stress). We pointed out that this logic would justify engaging in systemically destructive activities like the Magnetar trade, and that with government backstopping behind it to boot. And that is a bigger risk than it might seem at first blush.

A Moment’s Respite in Europe

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

As I type about 75% of the vote in the second Greek election in a month has been counted and the leaderboard looks like this.

NC Crowdsourcing: Will the Euro Survive?

All eyes in finance are on Greece…

Walkback on Basel III Confirms Bank Victory on Regulation

The Wall Street Journal reports that a key element of Basel III rules, its provisions on liquidity buffers, are about to be watered down.

Another Schneiderman Con: Proposes Likely-to-go-Nowhere Foreclosure Fraud Legislation

Having sold out the possibility of getting a decent settlement for homeowners for a seat in Michelle Obama’s box at the State of the Union address and a star turn on a Potemkin mortgage fraud task force, Schneiderman appears to be an adept student of the Obama strategy of preferring empty gestures to substance, since they generate good PR and take a lot less effort.

Satyajit Das: The Euro-Zone Debt Crisis – It’s Now ABOUT Germany NOT UP TO Germany!

Yves here. Das’ post has a lot of useful information, but like a lot of finance people, he is hostage to a conventional markets-driven reading of the issues. Governments are not households or businesses. When the private sector delevers, unless a country is running a big surplus (as Germany is) you can’t have government delever at the same time. So Germany’s notion of virtue (that governments and private citizens should wear an austerity hair shirt) works only for Germany.

There are also ways to prevent an Euro train wreck that don’t involve using German’s balance sheet, such as having the ECB issue bonds, or do revenue sharing (say on a per capita basis, as Marshall Auerback suggested in a NC post). Or the ESM could be given a banking licence via the ECB so that it has the ability to deploy unlimited capital to sort out the solvency issue (as France has suggested). Yanis Varoufakis’ “Modest Proposal” is another approach. But if Germany continues to oppose having the ECB take a much more aggressive stance, Das’ concerns are germane.

Peer-to-Peer Lending: Will Aggressive Operators Screw Up a Promising Idea?

Never underestimate the potential of bankers to ruin a good idea by trying to wring too much profit out of it. Subprime lending, mortgage securitizations, microfinance all were products that had merit and were beneficial until industry incumbents pushed for growth and cut corners and/or tried to extend the market well beyond sensible limits.

Peer-to-peer lending may prove to be yet another victim of this propensity.

Wolf Richter: Manna for Bankrupt Cyprus

In Greece’s chaotic wake bobs the listing Republic of Cyprus, soon to be the fifth Eurozone country, out of seventeen, to get a bailout. By June 30. Only last year’s €2.5 billion loan from Russia has kept it afloat. It’s economy is shrinking, unemployment is at a record, and real estate is collapsing after a phenomenal bubble and a nationwide title-deed scandal that has taken down the banks. But Cyprus has something—and it’s huge—that no other troubled Eurozone country has.

The Crisis Shifts to Italy

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

As we head towards Greece’s weekend election, rumoured to be celebrated by the locals by moving ever larger sums of money elsewhere, the Eurozone appears to be seriously straining under the constant pressure of its ongoing crisis.

Marshall Auerback: Germany’s Constitutional Conundrum

By Marshall Auerback, a hedge fund manager and portfolio strategist. Cross posted from New Economic Perspectives

Hans-Werner Sinn, president of Germany’s Ifo Institute and the director of the Center for Economic Studies at the University of Munich, has taken to the pages of the NY Times to explain why Berlin is balking on a further bailout for Europe. Amongst the points that Sinn makes against German sharing in the debt of the euro zone’s southern nations is a legal one:

Dimon Testimony Whopper: CIO’s Gambling on Disaster = “Portfolio Hedging”

Well, there’s nothing like seeing Jamie Dimon swinging for the fences. Dimon has taken his defense and turned it into an offense, in both senses of the word.

Bank Bonds vs German Intransigence

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

The fallout from the Spanish bank “bailout” continued overnight with Spanish yields moving back up and over their November 2011 euro area highs:

More on the Supposedly Out of Control JP Morgan Chief Investment Office and the “Fortress Balance Sheet”

Whocouddanode? As more and more tidbits leak out about the activities of the JP Morgan Chief Investment Office, it increasingly appears to be a unit that was inadequately supervised. While that revelation is a dent to the reputation of self-styled ubermensch and alleged control freak Jamie Dimon, if he takes a few lumps in the press and otherwise can carry on as before, what difference will it make to him and the industry? Lloyd Blankfein took at least as much heat over a longer period, and he’s still firmly in place.

The CEO “I’m in charge and I know nothing” defense is alive and well because it has proven to be so successful.

Serious Questions for Jamie Dimon in Occupy the SEC/Alternative Banking Senate Letter

As many readers may know, Jamie Dimon is on deck tomorrow before the Senate Banking Committee to explain how a soi disant hedge produced losses that are almost certain to exceed the $2 billion the bank has ‘fessed up to.