The coming storm

Content coming shortly, meanwhile here is a shot from last week. As you might guess from the clouds, it rained soon after I took this. (No seagulls were harmed in the making of this holiday.)

Shadow insurance

Matt Levine at Dealbreaker points us to a ‘big angry report‘ (his words) on captive reinsurance, by Benjamin Lawsky and his New York State Department of Financial Services. Matt’s certainly right that Ben has a bone to pick, given the ‘at least $48B’ of ‘shadow’ transactions apparently done. But when you look a little more […]

Peak HFT?

As Phil Albinus rightly says, if your trading strategy is destroyed by a 5c increase in trading costs, then you may have an issue: And now high-frequency trading is taking a long look at itself in the mirror. In the cold light of day, traders are rethinking their once favorite way to execute deals in […]

Do high haircuts intensify crash risk?

I heard an interesting idea today. I’m not sure I buy it, but it does have a sheen of plausibility: High collateral haircuts increase the risk of large price falls if the collateral is sold. Here’s why: after default, the collateral holder has no incentive to liquidate the asset for less than the loan amount. […]

Identifying a fraudulent conveyance

Carolyn Sissoko left me a highly thought provoking comment recently. She referenced a paper by Kenneth Kettering, Securitization and Its Discontents, that is definitely worth reading. Both Carolyn and Ken’s arguments are multi-faceted, and today I want to concentrate on one of them – the problem of identifying a fraudulent conveyance. First, why do we […]

Performativity in policy

I am buried in final book proofs – when your title is listed on the publisher’s website with a publication date less than six weeks away, you know that it is urgent – but I wanted to at least point to an insightful old post of Chris Dillow’s. He discusses how the ideological environment in […]

For once, a tumblr that is not full of grumpy cats

OK, it has one, but still, check out FT Alphaville’s hipper version of the blog.

Recap recap

Paul Melaschenko and Noel Reynolds have an interesting idea for recapitalisation of a failing bank. The essential idea is: You figure out how much equity the bank needs to be palpably and obvious solvent: call that x. You seize all the existing equity and all the existing sub debt (the holders will get something for […]

Quote of the day

From the Chairman of the Board of Governors of the Federal Reserve System: Economics is a highly sophisticated field of thought that is superb at explaining to policymakers precisely why the choices they made in the past were wrong. About the future, not so much.

Survival of the slowest

From Goldman research, via Reuters: Most banks remain hesitant to announce outsized cost cuts in client facing businesses before peers; their concern being that banks that cut expenses first will see outsized pressure on their revenue… Using history as a guide shows this fear is justified, as historically banks that have cut expenses more than […]

Becoming unexceptional

Patrick Smith has a long, lovely post at Salon. He makes the point that few institutions, and certainly not the principal ones of US polity, are self-correcting: [The system requires] the attention of those living in it. Otherwise it would all come to “disorder.” And this is among the things Americans are now faced with […]