Ah, I see now, Barclays is indeed in more trouble than it first appeared. Not only is there the threat of lawsuits from all the parties whose Libor fixings were effected, but there is also evidence that they ignored prior warnings. From the FT: Barclays’ compliance department failed to act on three separate internal warnings [...]
Izzy Kaminska has a truly excellent post on FT alphaville about government policy in a downturn, safe assets, and investor perceptions. This very much fits with the central bank policy on the asset side theory that I have discussed before. To see her point, let’s split the totality of investable assets into two classes, safe [...]
From the Euro area summit statement: We affirm that it is imperative to break the vicious circle between banks and sovereigns. The Commission will present Proposals… for a single supervisory mechanism shortly… When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could… have the possibility [...]
Good questions from Dealbreaker, apropos the ongoing Libor issues: If Libor isn’t just a trimmed average of some numbers that some banks tell someone from Reuters every day, then it is … the risk-free rate? The unsecured borrowing rate for AA banks? The unsecured borrowing rate for an actual assortment of disparately rated, often barely [...]
A man wearing fourteenth century armour walking across a muddy field won’t travel particularly quickly. Put him in a crowd with longbows firing at him, and he is likely to have a very bad day. The Hundred Years war, from Crécy to Agincourt, showed that that expensive creation the armoured knight was no longer the [...]
A few of my favourite quotes from the trustees’ report into the failure of MF Global. First, strategy: Regardless of whether Mr. Corzine’s bet on European sovereign debt would ultimately have been profitable, in the short term, MF Global became increasingly vulnerable to the developments that ensued in the fall of 2011… As MF Global’s [...]
From MacKenzie and Spears, apropos JPMorgan: a ‘hedge’ is not a self-evident feature of the world, but a contestable cultural category. Yes, Alphaville got there first, but honestly the whole paper really is worth reading. It very much backs up my suggestion a few days ago that it is not models-as-hedge-parameter-generators that were the problem, [...]
This is news from Friday, but with a twist that didn’t receive a lot of comment. From the Bank of England press release, with the key phrase romanized: Under current agreements, the Bank takes collateral when the risk to the Bank or HM Treasury increases. Under the changes being announced today the Bank and HM [...]
Two posts confirm that many people don’t understand what derivatives models are for. The Epicurean Dealmaker approvingly quotes a commencement address by Atul Gawand: … you cannot tame chance. That is what makes it chance. At base, implicitly attributing the kind of predictability these individuals seemed to ascribe to chance was a fundamental error, a [...]
Some people try to blog about a range of things, and end up doing most of them badly (yes, Felix Salmon, I am looking at you). Jonathan Weil just writes about accounting, but he does it really well. Today’s Bloomberg column is a classic, in which is he points out the absurdity of the accounting [...]
From the FT: LCH.Clearnet has raised the margin it requires from clients to hold Spanish government debt… The margin charged on 10-15 year bank debt will rise from 13.6 per cent to 14.7 per cent, for example… LCH has previously imposed an additional margin requirement of 15 per cent based on a number of factors, [...]
Lisa Pollack has a long and good post on FT Alphaville which can be summarized thusly: So, Mr. Regulator, given you had full reporting of JPMorgan’s synthetic credit trades in the DTCC warehouse, and it was blatantly obvious from that that they had a whale of a position, why didn’t you do anything about it?
There are only a few basic types of capital arbitrage trade. My first attempt at a taxonomy is: The leveller. Here risk within the same category is treated unfairly, with some risk cheap or equitable, and some risk expensive. The leveller turns expensive risk into something cheaper. A typical example is the collateral swap. Say [...]
Benoît Cœuré, Member of the Executive Board of the ECB, recently gave an important speech. It has quite a lot in it so even the bullet point version isn’t that short, but I promise you that it is worth thinking about his essential argument. Money markets around the world came under severe stress during the [...]
You wil have the news already. I am using this as a shabby excuse to post this picture:
A slightly expanded version of this post on the JPMorgan losses, accounting, and CRM models is up on FT alphaville here.
The US Anti-Doping Agency has brought formal doping charges against Lance Armstrong. Years ago, I said that there may be something fishy about Lance based on the same risk management principle that suggests that you should look very carefully at any position that seems to generate large excess returns with little risk. Yes, sometimes things [...]
In the theory of programming languages, you learn that parsing is a syntactical operation that doesn’t require any analysis of meaning. Therefore I shouldn’t complain that dealbook’s recent post, Parsing Jamie Dimon’s Testimony, doesn’t inform as, really, it doesn’t promise that it will. It does, though, set up enough clues that you can guess a [...]
First, the FED’s proposals on implementing parts of Basel 2, 2.5 and 3, here. Second, Barroso is pushing for EU banking union, but Britain is demanding a safeword. According to the FT: The plan, which would also include an EU-wide deposit guarantee scheme and a rescue fund paid for by levies on financial institutions, could [...]
Apparently not. Spain now owes 100 billion euros more, give or take, but yields are compressing and stock markets are rising. Clearly the austerians have, in a limited sense, been defeated. In the immediate aftermath, two things occur to me. First, this fits alarmingly into the pattern of doing enough to prevent an immediate crisis, [...]
The definition of ‘dangerous’ may be in dispute in LA, but this is not my topic. Instead, I want to post about over-collateralization. Credit risk is asymmetric. If you owe me money, I care, whereas if I owe you money, I don’t see any credit risk to me (although there may be liquidity risk). Therefore [...]
Another interesting idea from last week’s meeting: what is the closest that you can get to global liquidity management in a bank with subsidiaries instead of branches? It is an interesting question because, whether banks like it or not, subsidiarisation is a growing trend. Local regulators, understandably, aren’t comfortable with branches whose funding depends on [...]
I was at an interesting meeting last week where it was suggested that one of the things we urgently need to do to remove some of the pressure in Europe is revive the European securitisation market. I can see the advantages, certainly, in terms of bank funding, but I think the sovereign risk obstacles – [...]
From, of course, the Daily Mash: A government spokesman said: “It’s time for everyone to go home. Seriously, before we get the army out. “Admittedly when you tell a nation of mostly-unemployed drunkards it’s going to be ‘the best party ever’ you might expect it to get a little rowdy. But I’ve just seen Rolf [...]
DEM is en vacances.
