Look, Booboo, no crisis

Naked Capitalism makes a very good point about the (relative) lack of a catastrophe in the ABCP market recently: Many mortgage-related ABCP issuers have gone to a lender of last resort, namely the Federal Home Loan Banks, which have extended $163 billion of loans to them. (The FHLBs are commonly thought of as equivalent to […]

Black box trading and information fusion

According to Wikipedia, Information Fusion refers to the field of study of techniques attempting to merge information from disparate sources despite differing conceptual, contextual and typographical representations The convention is to keep the term data fusion for the situation where all information is quantitative, and use information fusion for the broader problem of integrating quantitative […]

The failure of a monoline

One of the many threats to the ABS market at the moment is the perceived decline in the credit worthiness of the large bond insurers, aka the monolines. There are a small number of these firms, and most of them carry either a AAA or AA credit rating. They are vital to the functioning of […]

The limited role of transparency

Charlie McCreevy, EU internal market commissioner, has an interesting point about transparency in regulatory dealings. According to the FT, McCreevy will say that transparency has a useful role to play in dealing with opaque financial instruments but will add: When the stability of a financial institution is at risk, the situation is best resolved behind […]

Snow down on the MLEC

John Snow – Hank Paulson’s predecessor as Treasury secretary – isn’t that keen on the MLEC either. According to Reuters: We’ve got all this paper out in the system, and my inclination is to say, let’s accelerate the price discovery process on this paper [...] We know that when you prop things up artificially — […]

The Rock as a SIV

FT alphaville has a nice post on Northern Rock, gathered from the Bank of England’s latest Financial Stability Review. They show this:That’s massive asset growth funded by issueing securitised paper. Hmm, that sounds like a SIV to me. After all, a SIV is just a simple bank with no deposit funding. That’s NR these days.

Countrywide and Convexity

The news that Countrywide is modifying a huge swathe of mortgages brings out the issue of servicer related convexity again. Countrywide is going to modify two types of borrower according to Naked Capitalism: Borrowers who are current now but look unable to cope with an upcoming reset. That is budgeted for $4 billion of loans […]

Conduits and Consolidation

Bloomberg has an interesting article Citigroup SIV Accounting Looks Tough to Defend. The author, Jonathan Weil, makes the point that Citi is caught between the devil and the deep blue sea: If it supports its SIVs, accounting consolidation kicks in since the firm is deemed to be providing implicit support and under FASB Interpretation No. […]

Wile E. Remembered

The head of the IMF, Rodrigo Rato, is worried about a Wile E. Coyote moment for the dollar too. Speaking at a meeting in Washington he said: There are risks that an abrupt fall in the dollar could either be triggered by, or itself trigger, a loss of confidence in dollar assets. The uncertainty … […]

Sliding SIeVes

In sharp contrast to some mild improvements in other parts of the credit markets, FT alpahville presents this enlightening chart, courtesy of Fitch. It shows how the average NAV of the SIV’s assets has continued to slide. The better players have been doing fine, but the worse ones are catching a severe cold, and the […]

Section 23A of the Federal Reserve Act

Wow, that’s an appetising title. This is not even by the lamentably low standards of this blog a sexy post, but the news is interesting. RGE via Naked Capitalism reports that the FED is permitting large banks to borrow money versus collateral and to lend it on to their affiliates. Section 23A refers to the […]

The brotherhood of the MLEC

Strangely enough, some bankers are not happy with the idea of Citi et al. manipulating the ABS market by waving assets into the MLEC at the wrong mark. From the FT: A committee of top international bankers on Sunday warned that the proposed $75bn mortgage securities superfund must be transparent in its pricing of assets […]

Keep bailing

Rich Bookstaber has a proposal: [...] what if the government maintained a pool of capital on the ready to buy up assets of firms that are failing, much as Citadel did for Amaranth and Sowood? Of course, if a private entity is willing to step up to the plate, all the better. But as a […]

Does a steeper skew presage a crash?

The S&P skew has steepened significantly of late. Does that mean anything, other than more buyers of downside options? In particular is there any evidence that a steeper smile is associated with large moves down? In the other direction it works – if there is a big fall then vols rise and the skew steepens. […]

Not MBS? Wave it in…

From the FT: Investors scrambled to buy a multimillion-dollar catastrophe bond on Wednesday as the market for natural disaster debt continued to boom. “Investors like these bonds because of the high premiums and the fact there are very few pay-outs. It is also a great diversification play. These investments are not linked in any way […]

Two misconceptions about the credit crunch

Reading Naked Capitalism’s discussion of an otherwise reasonably good article by Angel Ubide, it occurs to me to clear up two mistakes Angel makes. Central banks have added liquidity to a situation of already “excess liquidity” to tackle an apparent liquidity crunch, and yet nothing has got better. Perhaps it was not about liquidity, after […]

What’s in it for the Treasury?

The U.S. Treasury Department has been heavily involved in talks over the MLEC according to Bloomberg. Why, I wonder? It seems strange for a right wing Republican administration to interfere in free markets unless there is a very real systemic risk. Perhaps they know something about Citi we don’t that is worrying them. In any […]

Where’s the mark, Chuck?

The importance of my earlier question about how the MLEC will price the assets it is going to purchase is highlighted by an article in the FT today: [It has emerged that] Axon Financial, a SIV linked with the US hedge fund TPG-Axon, had taken losses of $110m on sales of $3bn of its investments. […]

Incentive structures in capital estimation

A capital model creates an incentive structure: if a firm’s estimate of the capital required to support its business rises, then that implies it is taking more risk. At some point increasing risk becomes unacceptable given the firm’s desired soundness standard, and so positions are cut. Recently there have been some discussion by Gillian Tett […]

They have some unusual animals in Regent’s Park at the moment…

…and some of them are even more rare than buyers in the ABCP market. That however, may be about to change. The proposal apparently (the details are sketchy) is for a group of banks to set up a mega-SIV. This new vehicle will acquire the mortgage assets now held by some existing SIVs and conduits. […]