Paulson puts scissors in drawer, ignores loaded Uzis

The NY Times has a useful summary of the Treasury proposals for regulatory reform. Consider this: The optimal structure should establish a new prudential financial regulator, PFRA. PFRA should focus on financial institutions with some type of explicit government guarantees associated with their business operations. Most prominent examples of this type of government guarantee in […]

The procyclicality of fair value

Broadly I am a supporter of the use of carefully estimated fair values for financial instruments: I think that accrual accounting hides a lot of information that the users of financial statements deserve to know. However, there is one aspect of fair value that is troubling: how it combines with leverage to provide another incentive […]

The SEC loses touch with reality

Naked Capitalism points out a scary new letter from the SEC to CEOs regarding valuations under FAS 157. The NY Times has a good summary: If Market Prices Are Too Low, Ignore Them. The offending part of the guidance is: Fair value assumes the exchange of assets or liabilities in orderly transactions. Under SFAS 157, […]

Hank Paulson and modalistic monarchianism

Hank has decided that regulation should come in three different modes: a `Prudential Financial Regulator’ to oversee financial institutions that have an explicit government guarantee such as deposit insurance, a `Business Conduct Regulator’ to monitor disclosures, business practices, chartering and licensing and a `Corporate Finance Regulator’ with `responsibilities for general issues related to corporate oversight […]

Bad idea of the year award

An easy winner, this. From the FT: The Federal Home Loan Banking system, a government-sponsored network of US banks, is seeking to enter the so-called “monoline” insurance market to help local governments that have been hurt by the credit market storm. In particular, some banks in the network want to offer their top-notch credit ratings […]

FED vs. SEC, round 2

It seems as if the appetite to regulate the broker/dealers is not strong at the FED. Today Hank Paulson stepped back from the brink while he said that the Federal Reserve should ­bolster its supervision of investment banks while they access its emergency cash, he stopped short of calling for permanent regulation of the broker/dealers […]

My King for a repo

Should the Bank reduce its collateral quality requirements and/or buy ABS outright? It is certainly thinking about it. The FT reports: Mervyn King indicated on Wednesday that the Bank of England was poised to take a revolutionary step and buy or swap illiquid assets on banks’ books for cash or liquid assets as way to […]

Privatised Infrastructure and the sad case of Heathrow

Heathrow, like Gatwick and Stanstead, is operated by BAA. Despite the positive impression created by the new Terminal 5, most of Heathrow is in a terrible state. It’s old. It has little or no natural light. It’s cramped. And it is stuffed full of shops and nasty food outlets to keep the waiting masses spending. […]

Burying bad valuations

Even though this article appeared on the Sunday before a Bank Holiday Monday, I don’t really think it was deliberately buried. It is just that it might be troubling to some. From the FT: The first public price estimates for specific structured credit securities to have emerged since the start of the credit crisis show […]

JP loves the Bear

Perhaps it will not be entirely unrequited at $10 a share. The NYT has the scoop, the FT has additional details, and some amusing speculation can be found on Naked Capitalism. Update. It’s official (or at least on Bloomberg). JP ups the offer to roughly $10/share, and buys 39.5% of the firm in newly-issued stock […]

Interest rate markets turbulence

One of the features of an illiquid, crisis-hit market is that arbitrage relationships break down. Another is a dramatic rise in settlement risk as bonds, even the best bonds, become illiquid. We are seeing both at the moment: The usual relationship between forward Libors and spot is breaking down by as much as ten basis […]

Small chance of a big change

In a potentially highly significant news item, the FT reports that Congress is set to scrutinise the regulatory framework for investment banks following the Federal Reserve’s decision to offer emergency finance – a move that could lead to tighter regulation of these financial groups. Why is this such a big deal? Well, I suspect that […]

Dark clouds lifting?

The FT reports: The dark cloud of uncertainty over the credit ratings of bond insurers Ambac and MBIA is slowly lifting, and sentiment in the credit markets and stock markets is improving as a result. Moody’s Investors Service and Standard and Poor’s this week reconfirmed the triple-A ratings for MBIA. Standard and Poor’s had also […]

Bridging the solvency/liquidity split

I have long argued that the split between solvency and liquidity is a false dichotomy in the current market. Decreasing liquidity can of itself and without changes in expectations of default depress the price of an asset and hence create a solvency problem. Similarly institutions that whose insolvency is rumoured find their liabilities illiquid. The […]

What a bargain?

If the JP deal to buy the Bear holds at $2 a share, they have got themselves a rather attractive looking deal. It must have taken courage to get to this point, and I’m sure they will find some nasties once all the stones are lifted, but the overall impression from the call is of […]

No safe harbour for tax cheats

From last Wednesday’s Guardian: Millionaires claiming residency in Monaco have told the Guardian they plan to circumvent the new rules by abandoning their weekly commute or transferring board meetings to offshore locations. […] Keith Luxon, a banker and seven-year Monaco resident, said the change was “completely unjust. It will have a big impact. “Whether it’s […]

The FED and unintended consequences

Robert Peston (via FT alpahville) has a suspicion: Well, the point of Tuesday’s dramatic $200bn intervention by the Federal Reserve in mortgage-backed markets was to stabilise the price of US government agency AAA-rated residential mortgage-backed securities and – by implication – to encourage the big banks NOT to seize assets in the way they’ve been […]

No more BS?

Liquidity depends on confidence, and the Bear lost it. Rumours have been circulating all week – see here for a summary from Naked Capitalism – and finally the Bear had to be bailed out on Friday. The SEC comments: The decision by the Federal Reserve Bank of New York to provide The Bear Stearns Companies […]

Quote of the day

From Paul Krugman: You see, $400 billion sounds like a lot, but it’s still small compared with the problem. It would be funny if it wasn’t true. Just to put it into context, Buiter thinks it will take two trillion to solve the problem.

How am I doing?

It is always good to take a look at the positions you were thinking about after the fact and see how they did. Let’s see: A short in gold. Definitely not a good start, although I am sanguine about this one in the longer term. Gold at over $1000 does not make sense. Long the […]