Colouring Hank

There’s nothing really new in the WSJ’s The Fannie & Freddie Question but it is a nice read and it gives some interesting colour on Paulson. I bet he really really wishes it was November.

Defusing Journalistic Hyperbole

Sometimes I wonder if the FT is sponsored by Euronext or the CBOT. Today there is an article by Aline van Duyn on derivatives and termination events. She points out, quite reasonably, that Fannie and Freddie are amongst the largest dollar interest rate derivatives counterparties – because they are hedging the prepayment risk of their […]

The biggest SIV in the world ponders its next move

The dumping-rubbish-ABS-into-the-ECB story is warming up nicely. The FT reports: The European Central Bank faces an acute dilemma: on the one hand it needs to ensure that banks have access to adequate liquidity, but on the other it needs to prevent banks profiting unduly from central bank funding. Recent signs of banks undermining the ECB’s […]


I am (1) above the waterline on Lehman and (2) starting to take it personally. This is usually a very bad sign for a position. There are doubtless hazards to navigate ahead but I think there may be more value there if Fuld can get something done soon. Despite Bloomberg’s (reasonable) concerns about Lehman’s mortgage […]

Freddie with FED leverage

Dealbreaker points out a nice trade: A bank that bought the six month notes from Freddie this morning could also bid to borrow from the Fed’s Term Facility, which held an $75 billion auction today. As collateral for the borrowing, the bank could offer the newly purchased Freddie notes, for which the Fed would give […]

Stop cowering, start taxing

Polly Toynbee had an excellent OpEd piece in the Guardian yesterday on Labour’s dismal cowering in the face of the anti-tax lobby. Why a nominally center left government refuses to impose the tax burden fairly is beyond me. They lack courage in tackling the super-rich, corporate tax planning, and the rest of the machinations of […]

Recapitalisation and the Debt/Equity Spectrum

Myron Scholes gave a good talk at the Lindau Nobel Prize winners meeting. The video is here.Scholes has a number of points but one that is of immediate interest is his observation on debt holder pressure. Scholes notes that as banks get riskier and require more capital debt holders want the new capital to be […]

Analytical Fiction

No, not a post on Kristeva (although you might call it one on American Pragmatism). Rather — and this is a little cruel, so of course I am going to do it anyway — a link to a series of embarrassing pictures showing Citi’s research call on the broker/dealers and their actual performance. It’s not […]

Where are the ‘risk free’ curves in dollars now?

It is a serious question: the Treasury curve is being moved by concerns about the cost of the GSE bailout, with some commentators saying that the US could lose its AAA. And the Libor curve, according to a money manager quoted by Bloomberg, aren’t reflective of the entire banking system but of three or four […]

Call of the week…

I have been wrong about this before and I may well be wrong about this again. But still, long Lehman. There, I’ve said it.

Keys not judgements

What were the ratings agencies doing really? Frank Portnoy writing in the FT, tells it like it is: the rating business has shifted from providing information to selling “regulatory licences”, keys that unlock financial markets. Consider Constant Proportion Debt Obligations, the financial Frankensteins that the agencies’ flawed mathematical models said were low-risk. Does anyone believe […]

What’s the biggest SIV in the world?

The ECB of course. Silly question. And they are even beginning to worry about it. The WSJ has details of an interview Nout Wellink gave yesterday. He is reported to have said: “If we see that banks become very dependent on central banks, then we must stimulate them to tap other sources of funding,” (It […]

Fannie and Freddie lead spreads higher

From the FT: Yield premiums across credit markets have jumped… The CDX is near its highs and the iTraxx IG is near 100 again. The CMBX AAAs are nearly at 200 as the picture opposite from Markit shows. Much of the market action is GSE-motivated, with the market worried about the consequences of their problems. […]

Beware certainty

Wise words from Doug Kass, via Big Picture: I continue to listen to and read a lot of convicted opinions for instance, the market has bottomed, financials have bottomed, oil has topped, stocks are enormously undervalued against historic measures… I would put those convicted opinions in a locked closet Quite right. The more convinced someone […]

Dismally bad

Larry Elliott in the Guardian has an article encouraging the Bank of England to cut rates. Larry is harsh with the Bank, accusing them of being asleep at the wheel, and he presents as evidence the Bank’s 2007 CPI prediction: This shows a zero chance of inflation reaching 5% in 2008. If we now turn […]

The other guy’s GSEs

Fannie and Freddie fell twenty something percent yesterday as the market digested a report by Barron’s on the state of the Agencies. In practical terms the Barron’s report seems to be pretty much correct: the Agencies will require recapitalisation, and it is unlikely this will be achieved without substantial help from the Treasury. However I […]

Position review

Before the summer began I discussed a few positions, purely on a didactic basis (of course). Time for a reckoning. Seller of credit protection on LEH and MER and long a FTD basket on the subordinated prefs of national champion banks. Both ugly on a MTM basis, but both positive carry. I still wouldn’t touch […]

Market gaps

Classical economics, curse its worm-infested body, teaches us that the market will generate innovations which meet demand. Leaving aside for a moment the obvious problem with this – that there is no account of how fast such creativity will happen – my recent travels have convinced me that there is a massive opportunity at the […]

Quid pro CDO

No, I don’t have anything to say. I just like FT Alphaville’s coinage. Oh all right there, I will say something relevant… Here’s a nice article in the FT about Tranche Warfare. You will of course be astonished, especially if you have read this, but: Some of the CDO and CDS documents leave a lot […]

What is the bond/CDS basis?

Accrued Interest has a fascinating data point on the troubles of the financials at the moment: Citi’s latest five year was done at 337 over Treasuries or roughly 235 over Libor. AI then suggests that there is an arb between CDS at 160 over and the bond at 239 over. In ordinary conditions that would […]