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 but those banks “too big to fail” go […]
Read more...Readers have probably figured out that I think the reporting in the Wall Street Journal is overrated. We have a prime example on page one today, “How Market Turmoil Waylaid the ‘Quants’.” My understanding is that newspapers are in the business of providing news. The story that the quants are in trouble is a month […]
Read more...John Dizard, in today’s Financial Times, tells us why, despite the fact that a lot of fixed income paper is on offer at very cheap prices, no one seems to be stepping to the plate. And his explanation bodes ill for things turning around very soon. The simple story is that even though the buys […]
Read more...The Fed’s move on Friday to lower discount rates and its policy shift towards addressing risks to growth has not brought relief to the sector that was in the most distress, the money markets. Panicked action continued Monday, begging the question of what, if anything, the authorities can do. Institutional are fleeing from counterparty risk […]
Read more...A gut-wrenching two weeks in the credit markets have been capped by unprecedented moves by central bankers. The ECB’s offer of an unlimited infusion to member banks the week before last was followed last Friday’ by the Fed’s discount rate cut, which included stern warnings that those who needed it better use it and a […]
Read more...A Bloomberg story, in what may be becoming conventional wisdom, charges Federal Reserve Chairman Ben Bernanke with making a novice’s error: By lowering the discount rate and issuing a statement conceding threats to the economy, Federal Open Market Committee members effectively ripped up the economic-outlook statement from their Aug. 7 meeting. Some economists describe the […]
Read more...Gillian Tett, in “Credit compass fails to work,” in the Financial Times, uses the woes suffered by monoline insurers such as MBIA and Ambac to illustrate that in our current subprime/housing credit crisis, nobody is sure where the dead bodies lie, which makes everyone suspect. Monoline insurers provide credit guarantees for securities. They have come […]
Read more...It’s summer rerun time. By happenstance, I came across a May post, which referred to a Federal Reserve study that had found that risks of hedge funds pursuing highly correlated strategies appeared, by some measures, as high as before the LTCM crisis. We had thought the Fed might be making a mistake in dismissing its […]
Read more...Even though the Fed cut the discount rate to 5.75%, and more important, said it was concerned about risks to growth, asset backed commercial paper, which is the epicenter of the credit shock, is being placed at newly high yields: 5.99%, which is now above the discount rate. And remember, not only has the Fed […]
Read more...Fragility seems to be the word on everyone’s lips today. As reported in the Financial Times, UBS market strategist William O’Donnell said that the commercial paper markets had dried up and, “Now the buyers are only interested in Treasury bills.” Overnight, Rams, an Australian home lender that, while not exposed to US subprime, had been […]
Read more...According to Bloomberg, Moody’s has altered investors to the possibility of a repeat of the 1998 Long Term Capital Management hedge fund crisis. We should be so lucky. As we have said before, the LTCM crisis has been widely, and in our opinion, mistakenly seen as a vindication of the workings of the financial system. […]
Read more...I am more than a bit late to this item, namely, an op-ed piece, “Our Risky New Financial Markets,” by Henry Kaufman in the Wall Street Journal on Wednesday. I’m puzzled at the lack of commentary on this article in the blogsphere. Kaufman, as chief economist of Salomon Brothers during its heyday in the 1980s […]
Read more...Nouriel Roubini, on his RGE Monitor, discusses the distinction between risk (variability in outcomes that can be estimated) and uncertainty (unknown or unmeasurable outcomes). Risk can be priced; uncertainty can’t (or at least can’t be priced by rational agents). Roubini argues that part of the panic in the markets stems from the fact that investors […]
Read more...This is priceless. The Wall Street Journal, in a page one story, “How Rating Firms’ Calls Fueled Subprime Mess,” tells us that rating agencies might have had more than a little bit to do with the problems in subprime. This is a new item? A page one news item? It would be a bigger news […]
Read more...Andy Xie, who until last year was Morgan Stanley’s chief Asia economist (he apparently made himself unpopular by being too candid about Singapore), gives a blunt critique of last week’s liquidity infusions by central bankers in “It’s time for central bankers to stop bailing out markets” in the Financial Times. Xie’s conclusion is that the […]
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