The normally sound Gillian Tett of the Financial Times endorses an idea that is both dangerous and unnecessary, namely, government backstopping of the system of short-term collateralized lending called repo, for “sale with agreement to repurchase.” The problem with her analysis is that her proposal treats symptoms rather than the underlying ailment. It would amount […]
Read more...The disastrous twins, ratings agency credit ratings and RWAs (risk weighted assets), are still embedded in Basel III. Dodd-Frank does not like this much. The ratings agencies are still a big part of Basel III, though the December draft does allow for the alternative possibility of using bank-internal models for assessing credit risk. Alas, the […]
Read more...Another ticking time bomb in the realm of real estate bad behavior is bound to go off sooner rather than later, and it is likely to impede normalization of values of residential property. As readers no doubt know, there is a lot of actual and shadow residential real estate inventory in the US. The time […]
Read more...I received this query from someone we will call AK via e-mail: Was wondering if you might be help with a mental exercise I’ve been toying with the last few weeks pertaining to the roll of timeframe of consequences, and whether we will be hit with a shock or slow-burn when gravity finally kicks in. […]
Read more...Arriving at the rush, with extra impetus doubtless imparted by the recent and ongoing Eurobanking panic, we have the Basel III capital and liquidity reforms (there’s a one pager, a full press release and, oh, not wholly unexpectedly, a somewhat anticlimactic phase-in timetable). In fact, the liquidity reforms here are just timetable entries – the […]
Read more...A little shock for the Germans while we’re at it, with resonances for the whole Eurozone. From FT Deutschland: The chief economist of the European Central Bank (ECB), Juergen Stark, considers the German banks to be undercapitalized. Stark made this statement on Wednesday at a meeting with the head of Unions Parliamentary Group in Berlin, […]
Read more...Morning all. A spot of short term cover for Yves, who will be back later today after a mini-epic, with the head of Medusa maybe. In Euroland, Ireland (on which more later if I have time), Portugal (whose banks turned out to need still more funding help from the ECB in August) and Greece (where […]
Read more...John Cassidy, and following him, Felix Salmon. took aim at Ben Bernanke’s testimony last week at the Financial Crisis Inquiry Commission explaining why the central bank and Treasury stood aside in Lehman’s extremis. The problem is that both get two fundamental, and critical facts wrong, and that error makes the rest of their claims dubious. […]
Read more...An interesting paper at VoxEU provides some empirical support for a commonsensical observation: that the pervasive use of limited liability structures for virtually all financial services activities creates “heads I win, tails you lose” dynamics. If you have no downside and can earn more by taking risk, then why not? While bad incentives like these […]
Read more...By Yeon-Koo Che, Professor of Economic Theory at Columbia University, and Rajiv Sethi, Professor of Economics, Barnard College, Columbia University, cross posted from VoxEU The role of naked credit default swaps in the global crisis is an ongoing source of controversy. This column seeks to add some formal analysis to the debate. Its model finds […]
Read more...As much as this blog was a persistent critic of the US version of the stress tests, I must hand it to the folks at the Treasury: they did an impressive job of dressing up and selling a garbage barge. The combination of consistent cheerleading, extend and pretend, and a few short squeezes did wonders […]
Read more...The New York Times reports on a welcome development: some banks are getting cold feet about lending to projects that are legal but still produce environmental damage: After years of legal entanglements arising from environmental messes and increased scrutiny of banks that finance the dirtiest industries, several large commercial lenders are taking a stand on […]
Read more...The very minute the Paul Volcker, who proposed the sound idea that government backstopped banks not engage in proprietary trading, said that trades done on behalf of customers were meant to be excluded from this proposal, anyone familiar with trading could see he’d just deep sixed his idea. Proprietary trading existed LONG before banks decided […]
Read more...Yves here. We were skeptical of derivatives reform efforts as inadequate to deal with the product that needed to be reined in, credit default swaps, and subject to evisceration depending on how various details were sorted out. And if the types of contracts that wind up being covered are reasonably broad, the new derivatives clearinghouse […]
Read more...This post first appeared on September 21, 2007 In an intriguing article today, “The Bank loses a game of chicken,” Martin Wolf, the Financial Times’ chief economics writer, followed the lead of the Bank of England’s Governor Mervyn King in backing down from their shared view that central bankers should be willing to let all […]
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