Minimum PDs – leverage constraints on the cheap

FT Lex (behind an increasingly annoying firewall) says: …a bank should not have to hold as much capital against US government debt as for complex structured loans. Basel … rules therefore attribute different capital ratings according to risk. At the top of the pile, government bonds rated AA and above are assigned a zero risk […]

The safe asset shortage

Ricardo Caballero has an interesting idea: the fundamental problem in the current global macroeconomic and financial equilibrium is one of asset shortages. In particular, there is a shortage of safe “AAA” assets. The world seems to need more US Treasury-like instruments than are available. This shortage of safe assets existed before the crisis, but it […]

820 replaces 157, level 2 messed up

Even for me, I will admit that is a cryptic title. It gets worse. It’s about accounting. Let me explain. The principal US accounting standard about fair value was Federal Accounting Standard 157, or FAS 157 to its (few but loyal) friends. As part of its update, 157 has acquired a new number, and it […]

Lancing the boil

A long time ago, I asked if it was possible that Lance Armstrong might be on drugs. A few people thought that he wasn’t. Now, the evidence seems somewhat firmer. All I will say is that I would never trust anyone who could subtitle a book My Journey Back To Life. Surely he should have […]

Square edges

Last year, several banks structured some CDO-squared, or Re-remic deals. These were typically repacks of old RMBS which had eroded in quality: the point of the repack was to produce a new AAA tranche by introducing more credit enhancement. Bloomberg now reports that this did not work so well. What was AAA last year is […]

It’s baaack!

Usually I abhor exclamation marks, but this one seems appropriate. Little noticed by most of the financial press, the first private label US RMBS deal since the crisis closed a little while ago. Dow Jones reports: The first residential mortgage bond to come to market after the housing bubble burst was sold on Friday to […]

Tie my caveat

I should admit from the outside that I have, very rarely, worn a cravat. It was however ironic. Or some such similar excuse. With that out of the way, let’s turn to Morgan Stanley and their dead presidents. The problem for MS is that there are some suggestions that it misled investors. These are similar […]

More on the CDO of ABS possible Ponzi

A little while ago I speculated on a possible Ponzi scheme (in fact if not in intention) in pre Crunch CDOs of ABS. The basic idea is that there was a false market in subprime RMBS tranches if there were no real bids, or few real bids, for mezz tranches other than other CDOs. Bloomberg […]


What I’d like to see in the current political mess is a grand coalition of the progressive parties forming around a Queen’s speech with one commitment – parliamentary reform, including a referendum on proportional representation (and ideally a fully elected second chamber). What I fear we will get is a Tory-LibDem pact without electoral reform. […]

Sand and fat fingers

I attended a meeting last week at which a doctrinaire free markets economist was praising the benefits of a market in markets. The theory was that lots of different markets in the same asset would somehow give better liquidity, cheaper trading and hence better price transparency. What tosh. No, what we see instead is that […]

Stressed Ben

From Ben Bernanke’s speech, The Supervisory Capital Assessment Program–One Year Later: Importantly, the concerns about banking institutions arose not only because market participants expected steep losses on banking assets, but also because the range of uncertainty surrounding estimated loss rates, and thus future earnings, was exceptionally wide. The stress assessment was designed both to ensure […]

How much growth will you pay for stability?

In the past I have made the argument that there is a trade off between financial stability and growth. You can have low growth and financial stability; you can have high growth and instability; if you get it really wrong, you can have low growth and instability. But what you can’t have is high growth […]

Higher education beyond the golden arches

One of the things that depressed me most about the UK Labour government of Tony Blair (and God knows there are enough items on that list) was their failure to live up to the ‘education, education, education’ motto, especially with regard to higher education. Gordo, of course, has not changed this approach, and things will […]