Apologies for the reliance on the Financial Times today, but it happened to have a lot of good material. The CEO of Harvard Management, Mohamed El-Erian, writes the occasional opinion piece, usually for the Financial Times, and I’ve always featured them because they are consistently thoughtful and well-argued. I’m highlighting his latest FT piece, “How […]
Read more...John Dizard, who writes a pretty-much-weekly column for the Financial Times, typically presenting an exotic investment idea, has long given me the impression he spends much of his day gossiping with people on trading desks. Which means he is very much plugged in, and some of the remarks he makes in passing can be more […]
Read more...Ciitgroup CEO Charles Prince, in an exclusive interview with the Financial Times, said something I expect he will come to regret: Chuck Prince on Monday dismissed fears that the music was about to stop for the cheap credit-fuelled buy-out boom, saying Citigroup was “still dancing”. The Citigroup chief executive told the Financial Times that the […]
Read more...One thing that has been a bit mysterious to me is that, given the nervousness among prime brokers who have been financing collateralized debt obligations and evidence that these lenders are tightening credit considerably, why haven’t more hedge funds gotten in trouble by being forced to liquidate or at least partially liquidate? The Lex column […]
Read more...It’s probably a character defect, but I get wound up when I read something that is directionally correct but then discredits itself by getting important facts wrong. The latest case in point is a Huffington Post post by Eugene Linden on “The Ecology of Toxic Mortgages.” It’s a more than usually frustrating example because 1) […]
Read more...With the holiday news slowdown, we thought we’d use the opportunity to focus on good posts on other sites. One by Christopher Whalen at Seeking Alpha, “Collateral Debt Obligations: Mark-to-Dealer,” addresses some topics near and dear to our heart, namely, whether there is systemic risk and if so, where will it manifest itself? Whalen’s views […]
Read more...That’s the question raised by the Financial Times’ capital markets editor Gillian Tett in a short update on rating agencies, and it’s an important one. As we discussed earlier, the credit markets have come to depend on rating agencies: If a terrorist were to blow up Moodys, S&P, and Fitch, it would have a devastating […]
Read more...Bloomberg reports that a Key Biscayne based brokerage firm, United Capital Markets, barred redemptions on its hedge funds that invested in subprime mortgages. This isn’t Bear Stearns redux. The firm presented the problem as simply investor jitters. Bloomberg reports that the fund suffered modest losses (5%, if you believe the valuations, which given press about […]
Read more...The Wall Street Journal provides a pre-holiday Bear recap, “After Blowup, Bear to Revamp Risk Control” (reproduced in full below). The high points: 1. Bear is bringing its asset management unit under tighter control of its parent and implementing stronger risk controls. Apparently the stringent practices of its trading floor weren’t observed in the asset […]
Read more...While we’re have a cliche fest, an ill wind blows nobody good, and it looks like that Bear Stearns hedge fund debacle had some unexpected upside, namely, producing a flight to quality, meaning Treasuries, sparking a rally. I’m sure you could have said the same of past crises (just for starters, the 1997 emerging markets […]
Read more...John Gapper, in a Financial Times comment, “How Bear Stearns Put Itself First,” argues that even though Bear Stearns’ decision to step in to manage the unraveling of its two troubled hedge funds was self-interested, it was also bad for the hedge fund industry and for the CDO market. I don’t agree with Gapper, and […]
Read more...James Hamilton of Econbrowser, in “CDOs: what’s the big deal?” weighs in on the question of what went wrong in the CDO market. He makes a point I haven’t seen stated as clearly anywhere else, namely, some CDO tranches may have been been likely to lose money from the get-go: The benign view of CDOs […]
Read more...I’m a bit late to this article from Friday’s Financial Times, “Bear Stearns assured investors on leverage,” which gives some new information on the formation of the Enhanced Leverage Fund, the one that went into crisis first, and how it went pear shaped. Cioffi had the bad luck to not only have some trades fall […]
Read more...In a move intended to restore confidence, Bear Stearns has sidelined former asset management head Richard Marin (he remains as an advisor) and has brought in Jeffrey Lane, vice chairman of Lehman, as his replacement. Ousting Marin was pretty much required, and on paper Lane has the right stuff (Lehman is a serious bond player, […]
Read more...There’s been plenty of discussion on this blog and elsewhere of the questionable role of rating agencies, particularly regarding collateralized debt obligations. Rating agencies are slow to downgrade weakening credits (if you are in the debt business, this is very old news), suffer from acute conflicts of interest in rating CDOs (they are a de […]
Read more...