As credit default swaps have come in and out of focus over the last year, I have been struck by the assumption that this product would of course continue to exist. I have trouble seeing their legitimate uses. In theory, they could allow banks to diversify and hedge credit risks better, but once risks rise […]
Read more...Readers no doubt recall that the Fed announced the creation of the Term Asset-Backed Securities Loan Facility, which will lend as much as $200 billion against new or recent vintage asset backed securities collateralized by “student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration.” One wonders if the order […]
Read more...This ought to be a celebratory event, the scrutiny of a powerful player in the financial system who heretofore seemed immune to criticism. And what is interesting about the spotlight on Citigroup consigliere and board member Robert Rubin is that, unlike Greenspan, the reassessment is starting while he would still appear to have his hands […]
Read more...Well, this is starting to get the feel of a bad soap opera, which is not helpful to Citi (never a good sign when I leave my computer on a Sunday afternoon and find multiple news updates when I return. This may not be full crisis mode, but it is certainly not a good sign). […]
Read more...The New York Times has a solid bit of reporting tonight by Eric Dash and Julie Creshwell, “Citigroup Pays for a Rush to Risk,” that seeks to explain why the giant bank got itself in so much trouble. The piece points to the usual culprit, too much risk taking, but the particular Citi flavor was […]
Read more...As the prospects for the economy deteriorate, the cost of default protection on corporate bonds hit a new high. From Bloomberg: The cost of protecting corporate bonds from default surged to records around the world as the prospect of U.S. automakers filing for bankruptcy protection fueled concern of more bank losses and a deeper recession. […]
Read more...What is intriguing about this article describing the likelihood of more synthetic CDO woes is that no one has a grip on how big a problem this might be and who might be exposed. From the Financial Times: Synthetic CDOs, the risky and complex debt products that are based on pools of corporate credit derivatives, […]
Read more...Heizo Takenaka, who held various posts in Junichiro Koizumi’s cabinet and is now director of the Global Security Research Institute at Keio University, provides a far reaching list of financial reforms. One can quibble with his count (he describes them as 11, but items one and four are two approaches to the same issue) and […]
Read more...Even though the (supposed) supervising grownups in the credit default swaps market keep making reassuring noises about the credit default swaps market, I am not entirely convinced, mainly because the picture is still somewhat murky. Witness the Bloomberg story today, which tells us that the CDS market is smaller than we thought, roughly $34 trillion […]
Read more...You cannot make this stuff up. From the Federal Reserve Bank of New York’s web site: Michael Alix has been named a senior vice president in the Bank Supervision Group of the Federal Reserve Bank of New York. He will serve as a senior advisor to William L. Rutledge, executive vice president, Bank Supervision Group…. […]
Read more...I am leery of formulaic approaches to investing and this New York Times article confirmed my prejudices. Conventional wisdown says forget market timing (you are bound to get it wrong and lose out). However, today Mark Hulbert advocates an anti-market-timing strategy: go into cash when markets become volatile. But that seems as difficult to execute […]
Read more...This informative discussion that sheds further light on the stresses created by credit default swap settlements comes in the current issue of the Institutional Risk Analytics weekly, “In the Fog of Volatility, the Notional Becomes Payable“: Another example of the ongoing discontinuity in the markets comes in the linkage between the unwind of credit default […]
Read more...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 […]
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