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 […]
Read more...Britain is moving quickly to use the its new bank rescue facility, which was increased from £59 billion to £75 billion. Note the article suggests that stock market trading may be suspended in connection with the rescues. From the Times Online (hat tip reader Tim): The government will tomorrow launch the biggest rescue of Britain’s […]
Read more...Now I am really going to rant. What is going on here? The financial system is on the verge of a meltdown, we have the Lehman credit default swaps settlement tomorrow, which is a huge test that has investors on Defcon One. Markets are as unhinged as they can be and still be functioning around […]
Read more...The International Swaps and Derivatives Association reported that the notional amount of credit default swaps outstanding fell from $62 trillion to a bit under $55 trillion as dealers worked to eliminate offsetting trades. This is a step forward, although it is hard to assess how significant it is. While the reduction in systemic risk is […]
Read more...One of the more depressing bits of emerging conventional wisdom is the notion that the financial system took on “too much risk” in recent years. I think it is equally accurate to suggest that the financial system took on too little risk. Consider the risks that were not taken during the recent credit and “investment” […]
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