In praise of Richard Wolff

I shall be away for a few days, so let me leave you with an excellent article by Richard Wolff in the Guardian. There’s a lot in this piece, and I will only quote a few parts of it. Let me pick up with his discussion of the history of tax in the US: The […]

Swap me up before you go, go

FT alphaville suggests that a consequence of the CFTC proposed rule whereby sovereigns (except the US, naturally) will have to post collateral to US swap dealers on OTC derivatives is that US swap dealers won’t do many trades with sovereigns. They are of course right. The large European, Asian and Latin American debt management offices […]

Top twenty sovereigns by CDS net notional

This is data for the next post. It comprises the top twenty sovereigns by CDS net notional currently as reported to the DTCC. ReferenceMarketNotional (USD EQ)EntitySectorTypeGrossNetITALY GovernmentSov283,927,804,66726,010,413,830FRANCE GovernmentSov101,420,159,58320,476,736,659SPAIN GovernmentSov164,190,071,87019,015,765,467GERMANYGovernmentSov95,291,941,48216,803,270,235BRAZIL GovernmentSov182,459,566,76016,655,151,570UK GovernmentSov62,416,026,45811,946,899,325MEXICOGovernmentSov124,849,244,5759,066,035,683JAPANGovernmentSov46,485,994,3458,147,687,846BELGIUMGovernmentSov50,422,873,8567,416,107,765PORTUGALGovernmentSov72,288,708,5686,581,678,265TURKEYGovernmentSov143,471,007,3816,391,210,586AUSTRIAGovernmentSov52,070,136,0666,270,933,248CHINAGovernmentSov38,814,484,1745,916,508,330GREECEGovernmentSov78,523,946,3145,342,770,919RUSSIAGovernmentSov100,719,048,6274,611,451,808KOREAGovernmentSov53,928,043,6554,326,483,915IRELANDGovernmentSov44,553,090,6294,162,232,694USAGovernmentSov24,255,397,3874,021,822,374HUNGARYGovernmentSov69,113,203,5023,528,398,702AUSTRALIAGovernmentSov16,647,528,5203,334,660,860

Building a new investment bank

The news that UBS might split itself into a Swiss retail bank and an investment bank got me thinking: how would you structure an investment bank today if you had a clean sheet of paper? Now of course you can’t start from scratch: every large bank is an accertion of history, mergers, long-past legal structuring […]

Long yeasty spread, short Danish ‘comedian’

This is my market call of the day. ‘Nuff said.

Twice as safe!

New, even safer European CCPs. Yes, FT alphaville might scoff, but the European parliaments proposals that CCPs should have at least ten million Euros of capital is a twice as good as the original idea. They started with five. So while the new CCP standard might not wash whiter, and while indeed it might fall […]

Greek CDS…

… typically trade under Old R restructuring. That fact could be become rather important soon. In Old R trades there is no limit on the maturity of the deliverable obligation, and no tranching in the auction post credit event. That in turn means the cheapest to deliver option may be quite valuable – there may […]

Short Lagarde at 6/4

C’mon guys, she is French. Who really thinks the next head of the IMF will come from the same nation as Strauss-Kahn? I’m with FT alphaville, short the favourite.

Give me priority

Priority in securities is a really, really important idea. There is a list. When trouble happens, people get paid out in order. Thus if you are senior, you get paid out first*, then the subordinated claims – perhaps a number of levels of them – then finally the equity. If there is nothing left at […]

Banks as reverse cookie jars

A cookie jar is something that, whenever you want a cookie, you can get one out of. A reverse cookie jar, on the other hand, is something that, whenever you have a cookie, you put it in the jar and it disappears. (What a nasty idea.) Falkenblog suggests that banks right now are like reverse […]

Meta is bad

From an insightful post on the Wisdom of Crowds on Wired (HT FT alphaville): Although groups are initially ‘wise,’ knowledge about estimates of others narrows the diversity of opinions to such an extent that it undermines” collective wisdom… certain conditions must be met for crowd wisdom to emerge. Members of the crowd ought to have […]


Now of course I am a cynical sort who is often wrong, but my first reaction on hearing the news about Dominique Strauss-Kahn was ‘why does the CIA want Sarkozy to win the next French presidential election?‘. Update. Doug, in the comments, is probably right; it’s probably just that DSK is a sociopath. But it […]

Climbing out vs. pushing under: the ‘everyone step down a notch’ theory of bank resolution

I could be wrong. I had thought that the idea of bank bail ins was to dilute or extinguish ordinary shareholders, to turn bail-in (tier 2 or coco) instruments into new equity, but to preserve senior debt holders. It seems that the last bit is not necessarily true. It is being contemplated, I understand, that […]

Who pays?

Why rob a bank? Because that is where the money is. That’s Sutton’s law, and a lot of sense it makes too. So, if you are a sovereign without enough money, who do you go to? Someone with money. This means that there are only a limited number of choices for solving the endebtedness problem […]

Fairly new

The new accounting standard on fair value, IFRS 13, is finally out. More information can be found here. I know, I know: be still my beating heart*. *Can you imagine my mortification at writing that line, googling, and discovering it is a Sting song?

The first systemic margin call of the commodities crisis…

… can be found here. Thanks to the Streetwise Professor for pointing this out.

On the impossibility of some government bond derivatives

Suppose that you wanted to do QE synthetically. What a government would do is buy the long end of the government curve and fund at the short end. So wouldn’t receive 10y govy rates, pay 3m bills do? Well no, it wouldn’t, and the reason is interesting. It’s counterparty risk. If, say, the US government […]

Why valuation matters more than capital

An article by Raihan Zamil on makes – albeit a little unclearly – a point I have emphasised for a long time: valuation matters more than capital. (See also for instance here and here.) Why? Well, let’s take a typical bank. Say it has 100 of assets, supported by 90 of liabilities and 10 […]

How economists failed to respond to the crisis

I’ve changed Brad DeLong‘s title a little, but I’ll quote quite a bit of his post about the failure of academic economics to react to the problems thrown up by the crisis: The most interesting moment at a recent conference held in Bretton Woods, New Hampshire … came when Financial Times columnist Martin Wolf quizzed […]

Burdensome Ben

According to Bloomberg, Ben Bernanke said today in Chicago: “No one’s interests are served by the imposition of ineffective or burdensome rules that lead to excessive increases in costs or unnecessary restrictions in the supply of credit … Regulators must aim to avoid stifling reasonable risk-taking and innovation in financial markets, as these factors play […]