Barry Ritholtz gave some helpful tidbits about CDOs on his blog, The Big Picture. The source is the Bloomberg magazine (unfortunately only for those with terminals can subscribe). From Ritholtz (quoting Bloomberg); “Worldwide sales of CDOs—which are packages of securities backed by bonds, mortgages and other loans—have soared since 2003, reaching $503 billion last year, […]
Read more...For those of you who are relatively new to the complexities involved in the pricing of collateralized debt obligations (CDOs), this Financial Times article, “Worries grow about the true value of repackaged debt,” gives a good overview. Since the article is lengthy, and the first part covers largely familiar ground, I’ve excerpted the second half. […]
Read more...An solid article by John Cassidy in the New Yorker, “Hedge Clipping,” on the work of former equity derivatives trader turned academic Henry Kat, who researched hedge fund performance extensively and concluded 80% of them fail to earn their handsome fees (in industry jargon, whatever alpha they generate, which is the excess return due to […]
Read more...Either it’s a horribly slow news day, or the Bloomberg people are besotted with the Bear Stearns story. I imagine journalists enjoy schaudenfreude as much as the next guy. From late afternoon until now, even after the Asian markets have opened, the top story on its “Breaking News” section is, “Bear Stearns Enlists Mortgage Chief […]
Read more...Credit Slips highlighted a recent Hudson Institute paper by Joseph Mason and Joshua Rosner, “Where Did the Risk Go? How Misapplied Bond Ratings Cause Mortgage Backed Securities and Collateralized Debt Obligation Market Disruptions.” It’s an excellent piece of work, and I recommend it to anyone who wants to understand more about the risks of mortgage […]
Read more...Ooh, when it rains, it pours. First Bear, now this. However, readers of this blog will know we have been posting for some time on rampant liquidity, inadequate risk premia, lax lending, and overvalued assets every where you look. We thank Michael Panzner of Financial Armageddon for pointing out this story from the UK’s Telegraph. […]
Read more...Bloomberg is keeping up a rapid pace of stories on the Bear Stearns hedge funds. Bear has apparently found some buyers for the assets of its High-Grade Structured Credit Leveraged Fund, the one for which it put in place a secured credit facility to permit an orderly workout. This was not an official announcement by […]
Read more...A good post from John Hussman at Seeking Alpha. He thinks we are on the verge of a sharp and overdue correcttion: In the microscopic focus on day-to-day fluctuations in the market, it is easy to overlook how unusual — specifically, unusually unfavorable — current market conditions are from a long-term historical perspective. The S&P […]
Read more...Merrill Lynch analyst Guy Moszkowski confirms our views of the last few days, that Bear Stearns will probably have to orchestrate some sort of orderly wind-up for its second hedge fund, the High-Grade Structured Credit Enhanced Leveraged Fund. For those who have not been following this story closely, Bear had two funds, both managed by […]
Read more...Before readers get too excited, let me be clear: this post is to discuss what circumstances might lead Bear Stearns to cease to be an independent organization. It is not an attempt to forecast the likelihood of that taking place. Despite their considerable prowess, investment banks are fragile organizations. It took only one major scandal […]
Read more...By happenstance, I came across a document, “Fixed Income Overview” from a May 29, 2007 Bear Stearns Investor Day presentation by Jeff Mayer, Co-Head of Global Fixed Income, and Tom Marano, Global Head of Mortgages and Asset Backed Securities on the Bear Stearns website. It’s a fascinating bit of reading and some parts are particularly […]
Read more...We had wanted to write about the role of models and more important, model assumptions in the ongoing Bear Stearns hedge fund debacle, and Gretchen Morgenson of the New York Times, in her story, “When Models Misbehave,” provided some useful intelligence. With all due respect to Morgenson, while she touches on some dimensions of the […]
Read more...In case you missed it, the US stock market was rattled by the continuing aftershocks of the Bear Stearns subprime-related hedge fund fallout, with the Dow down 185, and Bear itself was down in line with the Dow (both fell 1.4%, although Bear was up slightly in the aftermarket at this hour). Now the odd […]
Read more...The Economist takes a detached, often ironic, tone in its articles. So when one reads a piece that exudes worry, as this week’s “Bearish Turns” does, it’s noteworthy. The piece recites a litany of likely developments in the credit markets, all negative: the indeterminate state of the Bear Stearns subprime hedge funds; the near-certainty of […]
Read more...A solid piece, “Collateral value thrust to the fore by woes at Bear Stearns,” by capital markets editor, Gillian Tett of the Financial Times. It’s inherently difficult to value assets that don’t trade often (think of art), yet dodgy CDO paper has already been valued as colleteral so loans could be made against it. Some […]
Read more...