No, not that car. I think they look horrible, and they seem to be driven entirely by idiots. The company. The following should be illegal. I guess that it isn’t. But note that I have no idea if the sequence of actions discussed actually happened.
From the comments section of this [...]
There is a meme going around at the moment concerning size in banking. The basic idea is that too big to fail banks are a bad idea. Various people have various ideas of what ‘too big’ is, with numbers like 300B total assets (a number floated in a nice post at Dealbreaker) being [...]
Interfluidity has a nice hypothetical:
Consider a hypothetical asset manager, PIMROCK. PIMROCK reviews a pool of loans held by the bank J.P. Citi of America, and its analysts determine they are worth 30¢ of par value. The bank holds them at 80¢ on its book. PIMROCK agrees to put down $10B to purchase loans from the [...]
Even by the intolerably low standards of this blog, this one is going to be obscure…
I want to talk about gears. Bicycle gears. For ordinary people, rather than, say, drug crazed Americans who have recently broken their collar bones. So, what does a reasonable rider want from his or her gears?
A bottom [...]
Simon Johnson has an excellent article in the current issue of The Atlantic magazine. His basic premise, as an ex-IMF chief economist, is that crony capitalism is a fundamental part of many emerging market crises, and it is only when the cronies are forced to take some pain that the crisis can be resolved. [...]
I don’t always agree with Michael Meacher, but this letter in the Guardian is so good, and hits the tone which is lacking in both the government and the official opposition so well, that I am going to quote it nearly in full:
We urgently need … an alternative to the prevailing Tory-New Labour orthodoxy. I [...]
The FT article is titled Geithner lays out new financial rules, but that is a little misleading. Rather our lad Timmy has laid out a framework under which new rules will be written, but we have no idea what the rules will be yet. What details there are do not allow one to [...]
The Geithner plan, understandably, has generated many column inches since it was unveiled on Monday. There is little consensus among the commentariat, but the markets have taken it well. What should we take from Timmy’s last (or at best next to last) stand?
First, it might actually work either by accident – because we [...]
I think China is all talk and no action on the dollar at the moment. But if they are not, there is a fortune to be lost or made when the Wile Coyote moment arrives.
Update from the Huffington Post here. My favourite quote is from Chalongphob Sussangkarn, a former Thai finance minister and [...]
Greg Mankiw writes some complacent nonsense:
At Harvard, we have not instituted any radical reforms in the introductory economics curriculum in response to recent events. We have had some guest speakers, such as John Campbell and Andrei Shleifer, give excellent and well received lectures about the current crisis to assure students that, despite all the uncertainties, [...]
The best comment on bonuses and social inequality so far:
(HT Jonathan Hopkin.)
Martin Wolf is a little harsh on Lord Turner in the FT. He says:
First, it does not explain why we can hope to contain the behaviour of companies too important to fail.
True, but increased capital requirements will certainly help, along with better supervision of liquidity risk. The devil is in the details, I [...]
This is so incredible, so bizarre that I have to blog.
The FASB has lost its mind. It is proposing that:
U.S. companies would be allowed to report net-income figures that ignore severe, long-term price declines in securities they own. Not just debt securities, mind you, but even common stocks
(Quotation from an excellent Bloomberg article [...]
I am looking at hosting Deus Ex on my company website, and so posting will be light over the next little while as I investigate alternatives. Probably I’ll go for Word Press. Any comments from those with experience of such things would be very welcome.
The FSA’s regulatory response to the global banking crisis is out: see here.
My first reaction is that it is fairly sensible. Some highlights:
Section 1.1 is a really nice summary of the development of the crunch.
There is an interesting, and perhaps surprising, insistence on the inadequacy of current transnational arrangement to cope with global banking [...]
My apologies for an incendiary title. I don’t really mean it of course. I think I have a slight case of hyperbole from Francine McKenna. Still, in this article at The Huffington Post, she points out that
The Big 4 public accounting firms haven’t yet been asked the hard questions by governments, legislators, [...]
Oh dear me. The biggest tax arb house on the street is being investigated by the Inland Revenue. The Guardian has the details. But clearly anyone structuring transactions whose main aim is to reduce tax (an international avoidance factory perhaps?) has reputational risk. That risk appears to be biting. If [...]
The TALF says: please take a seat.
(The FED press release is here. Useful commentary from Philip Gelston of Cravath, Swaine & Moore via Marketpipeline is here.)
A few years ago, in a fit of patriotism, or the desire to support local industry, or something equally foolish, I bought a British-built PC. A Mesh. Goodness, what a mistake. It wasn’t delivered when it was promised. When it arrived, it felt shoddy. And ever since, it has had [...]
(HT The Big Picture.)
What is interesting about this is the GIAs. I _think_ that these are GICs, i.e. guarantees of minimum investment returns, sometimes on variable balances. Obviously as rates have fallen, GICs have become more valuable to the holder and riskier to the writer. Insurers have conspicuously underpriced the implied puts [...]
Willem Buiter has a discussion of how good bank/bad bank separations might work in detail: the mechanics come from Robert Hall and Susan Woodward. I will simplify the argument a little, and discuss the issues.
Consider a bank with:
Assets
Liabilities
Good loans
1000
Deposits
1200
Bad loans
500
Bonds Issued
600
Other assets
380
Shareholder’s funds
80
(Let’s ignore the off B/S stuff for this post and assume that [...]
I have a terrible confession. I have never liked Elvis. But aside from dead musicians, Bloomberg is doing a great job on chronicling the absurdities of accrual. David Reilly says:
Of the $8.46 trillion in assets held by the 12 largest banks in the KBW Bank Index, only 29 percent is marked to [...]
Paul Volcker suggests that:
the US could perhaps do with a new version of Glass-Steagall, this time splitting hedge funds, private equity funds and proprietary trading off from Wall Street banks.
How would you enforce it, though? You can’t force them to take no risk, not least because banks cannot precisely maturity and FX match their [...]
The big Mac is now not only little, but actually less than nothing. Bloomberg explains.
Why did I sell short dated Wells Fargo bonds at a small loss recently? Because as Bloomberg reveals today, Banks’ Bondholders May Be Next to Share Bailout Pain. Do I think that senior debt holders will take a haircut soon? Probably not. But probably not wasn’t good enough, especially when Geithner [...]
I have made a bit of a sideline in highlighting some of the less helpful comments on the CDS market. It pains me to include a man I generally respect, Paul Krugman, in the list of people who have got the wrong end of the stick.
He first quotes marketwatch:
The spreads on credit-default swaps for [...]
He says:
The state that promises maximised choice and minimal risk is in serious danger of encouraging people to forget two fundamentals of economic reality – scarcity as an inexorable truth about a materially limited world, and concrete productivity and added value as the condition for increasing purchasing power or liberty, and thus sustaining any kind [...]
It is an interesting question. First, note that Ben’s recent call for US regulatory overhaul is welcome, if overdue. Both the politics and the practicalities of any change are formidable, however necessary it is.
Even the question of role of the central bank is redolent with issues. If they are not the stability [...]
Two depressing data points, to add to the general gloom.
1. After talking with some friends in New York, I called Merrill for a quote on short dated Wells Fargo in size today. Their bid/offer was 3 big figures wide.
2. I hit the bid.
Goodness, how the mighty have been laid low. Two large British clearing banks have been destroyed by one bad purchase: RBS by ABN; Lloyds by HBOS. I am heartened that the government has extracted a reasonably high price from Lloyds for its rescue: RBOS got away a little more lightly. A lot [...]
No, not a post on my recent engagement with Pilates. Instead I am going to be a little Englander for a moment. This isn’t out of prejudice: it is more a consideration of self sufficiency.
What’s the problem with being an exporter? It is that if your clients stop buying, your [...]
I will stop doing this soon I promise. But this is too good to resist.
There is at least one piece of good news in troubles that the Obama administration are having with filling some jobs. As the WSJ reports, Annette Nazareth, who was expected to be tapped as deputy Treasury secretary, has withdrawn. Annette was responsible for the consolidated supervised entity program at the SEC that was [...]
The full transcripts of Mervyn King’s evidence to the Treasury select committee are not up just yet, but this morsel struck me as very much on target:
It is moral hazard that has led us to where we are. I don’t want to blame anyone. All the players have acted rationally given the positions they were [...]
There is a growing meme at the moment on the failure of academic economics. Anatole Kaletsky has a piece in the Times which reminds of the responsibility economists bear using Keynes’ famous quote:
Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen [...]
AIG of course. RBS might have thought that it was in with a shot, but it is Tim Henman to AIG’s Andy Roddick. The biggest loss in UK history just doesn’t cut it on the world stage when someone like AIG can come in with a number like $61.7B. No contest: the [...]
Relax, it will happen soon. And that counterparty will be JP Morgan.
A correspondent of mine asks, apropos this story:
AIG, whose reach is so vast that the government warns letting it fail would cripple the very world financial system
Why are companies allowed to get this big? The answer is of course that they shouldn’t be, if you care about financial stability and moral hazard, at least. [...]
