Burying Basel

It is far too early to pronounce the bloated body of Basel 2 dead, but at least the patient is ailing. In the FT Harald Benink and George Kaufman have some suggestions: First, we urge the Basel committee to conduct another quantitative impact study using observations from the recent turmoil before allowing banks to use […]

Fannie, Freddie and other friends

Goodness, let’s take one entity which has just recorded a whole year loss of $2.1B, add in another to get to a total of $11.3B of accounting errors, and then let them take more risk in a rapidly falling market backstopped by the tax payer. Winning idea. What could possibly go wrong?

Idea of the day: consider a short in Gold

I’d like to see this in Euros, but at least in terms of the depreciating dollar, gold seems strikingly overbought. Any recovery, even a dead cat bounce, is likely to be negative for gold.

Corporate bonds are good value…

…according to Deutsche Bank: Euro investment-grade company bonds are pricing in defaults 15 to 20 times worse than the average since 1970, and six times the worst on record in that period, Deutsche Bank said, due to the turmoil in the structured credit market. The sharp widening in spreads has come even though actual defaults […]

S&P confirms FANT.W at AAA

Yes, S&P’s fantasy world where the bond insurers are AAA is developing nicely. Bloomberg reports: MBIA Inc., battling to stave off the crippling loss of its AAA credit rating, soared in New York Stock Exchange trading after Standard & Poor’s said no downgrade of the bond insurer is imminent. The insurer remains on negative outlook, […]

Is Fair Value Fair?

John Dizard continues the battering of mark to market in the FT: Many now believe that like the fictional nuclear Doomsday machine, the unbending application of mark to market rules is not, in the end, a sane way to manage the world. Here’s the problem: the mark-to-market rules assumed there would always be someone willing […]

What’s Broken?

The conventional explanation for the decline in the ABCP market is that structured finance is on the slide, perhaps for good. There is another reading, though. It could be that the structured finance isn’t dead – after all Morgan Stanley got a CMBS deal done recently – it could be that maturity transformation is dead. […]

Mitigating Moral Hazard

Willem Buiter has a typically intelligent post on Northern Rock. He ends, as one might expect, with a discussion of moral hazard: Future Northern Rocks will be encouraged to fund themselves recklessly and to lend and invest recklessly. Their creditors are after all the beneficiaries of a free government guarantee. If their bets come off, […]

Equity/Credit: Who’s Right?

Naked Capitalism has a thought provoking article on the current disconnection between the equity markets and the credit markets, which in turn refers to FT articles by John Authers and John Dizard. Authers describes the issue: If you believe the credit market, things have worsened sharply in the past few weeks. With spreads widening significantly, […]

Behind the pack

One of the major motivations for this blog was to understand how the rules of a given game determine the results, and how participants can better prepare themselves for adverse outcomes by understanding the class of behaviours the rules encourage. Subprime for instance was fundamentally caused by mis-aligned incentive structures. A good example of a […]

Three balls in Frankfurt and New York: a Decade of Deflation?

The FT has a story reminding us that the FED is currently playing a game of ‘go on, I’ll trust you, how much do you want for that?’ that would shame a small town pawn shop. The use of the Fed’s Term Auction Facility, which allows banks to borrow at relatively attractive rates against a […]

Credit Suisse: "Repricing of certain asset-backed positions"

With the markets in structured finance plummeting, there is clearly an incentive to polish up valuations for inventory positions. It appears as if some traders have given in to temptation at Credit Suisse. A press release today reveals an overestimate of inventory value amounting to $2.85B and the BBC reports that structured credit traders in […]

Alignment of interests

I am probably boring about alignment of interests – because I think it is so important. Without it, trading requires a lot of due diligence and you are always unsure if you have missed something. With it, you can have more confidence that your counterparty is not intentionally trying to screw you – the possibility […]

Never mind the quality, feel the fees

Oh to be a litigator today. There are so many delicious cases to sate yourself on. Should you take on one of the ‘significant legal challenges which will hold up the resolution of the monoline issues for years‘? Sue the State of New York perhaps, or something in Wisconsin? Or maybe you want to represent […]

Not too hard, Darling

Good grief, Alistair, there was no need to react that way. One minute I’m calling him a wimp and the next he’s nationalised a bank. That, to be fair, does show backbone, and is probably the best thing for the public purse. Certainly if the Virgin and management bids did not offer value to the […]

Certainly fair vs. possibly damaged

Alistair Darling almost did a sensible thing, then he lost his nerve. The UK’s current treatment of non-dom taxation is embarrassingly regressive and can hardly assist the fight against money laundering. More than that, though, it is simply unjust. People living and working in England should pay for the facilities and services they enjoy. For […]

Monoline pot pourri

It’s a make your own posting for the weekend: just a few random facts which you can cook up, or not, as you see fit. FGIC wants to be split into two, leaving a muni insurer and the rest, primarily structured finance (of which much is U.S. RMBS, prime and subprime). There is no word […]

What form of structured finance protection have the monolines written?

This is a valid question as we go into any restructuring of the bond insurers, and the answer is more complicated than it appears at first sight. Here are some of the issues. Many corporate bonds pay interest and final principal – you get coupons for some period, then a return of principal. A standard […]

Your crunch update

Courtesy of Markit. The ABX AAAs (scale in cents on the dollar so falling is bad).The CMBX AAAs (scale in bps spread so rising is bad).And the CDX North America Investment grade corporate credit index (both):In the words of the Klaxons, It’s Not Over Yet. In fact, it looks as if it is only just […]

Let No Man Rent Asunder

Eric Dinallo, New York’s insurance superintendent, testified today at a hearing of the House Financial Services subcommittee. Both the FT and Bloomberg report various parts of his evidence. The FT first: [Dinallo] said on Thursday that a government bail-out of troubled bond insurers ”is not planned”. […] Mr Dinallo, told lawmakers that finding a solution […]