It’s one thing when people who have little to no experience in the financial markets worry about the risks posed by derivatives and other innovative financial products. It’s quite another when a concerned individual also happens to have been deeply involved in risk management at major Wall Street firms. The financial markets insider is Richard […]
Read more...John Kay in the Financial Times gives the best layman’s explanation I have seen of the most widely used risk management approach in financial institutions, value at risk (VAR) and tells us what’s wrong with it. In a nutshell, VAR assumes a normal distribution of events (aka a bell curve). The problem is that prices […]
Read more...You seldom hear language like this from anyone in the deal community, particularly a borrower. But Steve Rattner, head of Quadrangle Partners, sees himself as not just your average LBO maven, but also a thoughtful Democrat (he was expected to get a post in a Kerry administration). But also notice that his comments in a […]
Read more...As we’ve pointed out, if one is the worrying sort, hedge funds give plenty of reason to concentrate the mind. It’s not just that they are highly leveraged, unregulated, big, and getting bigger. The Fed has also admitted it doesn’t know what they are up to, which means their reassurances aren’t fact based (how can […]
Read more...This is a great post by Tanta at Calculated Risk on the classic types of mortgage frauds and how they morphed into new forms due to a unique confluence of buyer naivete and broker/originator greed (oh, and sometimes buyer greed too). She clearly discusses recent versus traditional procedures. Tanta lays considerable blame at the lending […]
Read more...The post below is from a reader, DS. He focuses on the fact that the Fed has basically admitted that its powers are limited due to the extent of financial activity that takes place outside its purview (the Fed supervises federally-chartered banks; securities firms, which are regulated by the SEC and hedge funds, which are […]
Read more...A post from a reader, “Toothless Fed,” argues that the latest wave of financial innovation has produced “profit grabs” by the few at the expense of the many, Ponzi schemes, and an erosion of traditional values like prudence. Overheated? Overwrought? Perhaps. Or maybe he’s just calling a spade a spade. Other people are coming to […]
Read more...Forgive us if we seem to be picking on New York Fed president Timothy Geithner. Actually, not that we know him, but he has a reputation (by Fed standards) for candor. So the problems we have with his speech should not be seen as an attack on him, but on the increasing difficulty of the […]
Read more...Most sophisticated financial people I know take great comfort from the happy resolution of the LTCM debacle. As you may know, LTCM (Long Term Capital Management) was a hedge fund created by John Meriwether, a star trader from Salomon who headed its highly profitable bond arbitrage group, and included two Nobel prize winners among its […]
Read more...Compared to other Fed presidents, Timothy Geithner is straightforward and more than usually willing to talk about bad things. So when he gives a speech that is comparatively upbeat, as he did earlier this week (“Credit Markets Innovations and Their Implications“) it should be reassuring. So why did this speech bother me? It wasn’t as […]
Read more...The financial press has fretted that the problems in the subprime market may spread to other parts of the mortgage market. While defaults and delinquencies aren’t contagious, investors can get nervous and decide they may have been overly optimistic about risks in safer parts of the market. But the next likely casualty isn’t higher grade […]
Read more...Mark Thoma on Economist’s View, sums up his view in his headline, “Kenneth Rogoff: German Leaders Are Right About Hedge Fund Transparency and Regulation“. Rogoff takes issue with Paulson’s dismissal of the idea of making hedge funds more accountable. It’s odd that Paulson even thinks he had a vote on this issue, since the Treasury […]
Read more...Oh, how the mighty are fallen… Some of the biggest securities firms’ own debt instruments are now trading as if they were five grades below their current S&P and Moody’s ratings. It’s pretty common when the credit quality of a company is deteriorating that the markets will mark it down before the rating agencies can […]
Read more...Berkshire Hathaway’s annual report is out, and with it, Warren Buffet’s famous letter to shareholders. I took a quick look, and found the Financial Times’ take on the main points (“Buffet attacks hedge fund fees“) is as good as anything I could say: Warren Buffett, the world’s second-richest person, on Thursday stepped up his criticism […]
Read more...Just a couple of posts ago, we complained about Bernanke talking up the stock market. While that may indeed have been what he was doing (and we don’t approve of that), he may also have been trying to slow action in the credit markets, and that is a legitimate use of his power of the […]
Read more...