The equity credit dislocation

I have observed before that the equity markets have not yet reacted as fully as the debt markets to the crisis – and increasingly it looks likely that they will fall further rather than that the debt markets will rise to join them. Goldman is of that mind, and has recently observed that downside vol […]

Hiding the pain

A couple of weeks ago I pointed out that while the US institutions have taken their write down medicine, raised new capital, and are busy getting on with trying to figure out what to do next, the Europeans have been much less assiduous in recognising their losses. Now Citigroup, via FT alphaville, comes up with […]

Knowns and Unknowns through the Crunch

I have been reading Cassola et al.’s A research perspective on the propagation of the credit market turmoil from the most recent ECB research bulletin. The paper concentrates on information issues in the credit crunch. Here’s how I see matters there. Before the crunch investors had some information on asset prices as many ABS were […]

Cosmetic but effective in the short term

Just like these council workers taking down fly posters only for them to reappear in a few days, so banks are getting ABS off balance sheet by offering to finance them. The FT reports one such set of tricks here and Naked Capitalism has a discussion of Lehman’s deleverage using related shenanigans here. The bottom […]

Cluedo for financial markets commentators

There is an amusing little game from Forbes here. Here is a summary of the results so far:

Default and CDS written by or referencing monolines

Recent articles (see for instance here, here, here, and here) have spurred a concern that I confess should have occurred to me earlier. What can cause an event of default by a monoline, and what happens next. The first issue concerns the effective recovery for ISDA claims against a monoline. Here the crux is the […]

Fed, SEC Near Accord To Redraw Wall Street Regulation

Am I the only one to think that a more comprehensive solution to the fractured US regulatory landscape is needed than just to increase cooperation and information-sharing between the central bank and [the] SEC as the WSJ reports is in the offing? What about alignment of capital requirements? You need to rebuild the whole building, […]


… or perhaps not if you are a monoline. Especially a press officer at a monoline. There’s lot’s of steam to generate as this list of current press releases from Bloomberg admirably demonstrates. Oh yes. Long coal, short insurers.

Management acts while pools go fetid: ratings and dynamics of loss distributions

I have been reading a fascinating (if long) article Where Did the Risk Go? How Misapplied Bond Ratings Cause Mortgage Backed Securities and Collateralized Debt Obligation Market Disruptions by Joseph Mason and Joshua Rosner. There is an awful lot in the document, but here I want to concentrate on one issue they raise which I […]

Liquifying the ECB balance sheet

The Economist points out an issue: The European Central Bank (ECB), widely praised for providing banks with ample liquidity during the credit crunch, now has a problem: how to encourage banks to place freshly created asset-backed securities (ABS) with investors, rather than dumping them, like so much radioactive waste, in its vaults… On the face […]

Liability Fair Value

Tom Selling from The Accounting Onion was kind enough to point out his blog to me. Reading a post on FAS 157, it suddenly occurred to me that the implementation the audit firms have permitted of 157 on liabilities, based on the FASB staff position, isn’t consistent with the conceptual framework of 157. The standard […]

The ECB on Eurozone Bank Loss Recognition

More from the ECB financial stability review. We take up the story with a discussion of the losses in large complex financial institutions: The impact of the sub-prime crisis can be seen in the figures disclosed by banks in their financial statements in two main ways: valuation changes on various assets and increases in credit […]

Mortgage eye candy data from the NYT

Florida and Nevada I can understand but that Michigan/Ohio/Indiana cluster is interesting. My shorthand – if it’s a CSI location it has a mortgage problem – clearly needs to be revised unless CSI New York is renamed to CSI Lansing.

Conditions update from the ECB Part II

A few more items that interested me from the ECB document discussed earlier. The Turn. The spike in rates over year end is known to interest rate traders as the turn. Look at how it intensified in 2007 vs. earlier years: Country Linkages. A fascinating graphic of the interbank linkages between countries: Delevergage. The change […]

Conditions update from the ECB

The most recent ECB financial stability review is a mine of useful information. Here are a few nuggets from the first chapter: more to follow. U.S. Cash out refi. As many people don’t have much equity left in their homes and remortgage conditions are very difficult, cash out refi and 2nd lien financing has fallen […]

The GSEs ate my mortgage

If you are a U.S. residential mortgage consumer and you don’t want a jumbo (and I don’t mean these wonderfully horrible elephants) then the overwhelming likelihood at the moment is that your loan will be funded by a government agency. Freddie and Fannie currently have more than 80% of the mortgage funding market according to […]

Rated Wrong

It was obvious in 1999 when the first consultative paper on Basel 2 came out that using ratings as the basic risk assessment tool for regulatory purposes was a mistake. Belatedly it seems that the supervisors have realised their error. From the FT: US regulators on Wednesday raised concerns about their own reliance on the […]

What is not expected

There has been some talk recently (perhaps inevitably) about the next crisis to hit. Suggestions include: A wave of U.S. Bank failures. According to Reuters: Future U.S. bank failures linked to the downturn in the real estate market may include “institutions of greater size” than in the recent past, Federal Deposit Insurance Corp Chairman Sheila […]

Rather little CMBS

Whither the CMBX? Specifically, where are the 08-01s going to come from, given that CMBS issuance has plunged along with prices. According to the FT: The amount [of CMBS] issued in the first five months of this year fell 89 per cent to $10.8bn, the lowest level since the late 1990s, according to Commercial Mortgage […]

Merrill vs. XLCA

In an important case for the structured finance market, Merrill has won a court ruling in its favour in a case against XL. Reuters reports: Security Capital Assurance had said it severed seven credit guarantee contracts with a Merrill unit because the investment bank had given key rights promised to SCA under the contracts to […]