Bailout

Hitting secured creditors

Posted on November 20, 2009
Ira Stoll notes that the Miller-Moore amendment has passed. He calls it the "Bair-Miller-Moore Haircut", and he doesn't like it; I, on the other hand, think it's a spectacularly good idea. This is the meat of it:

How to slow down foreclosures

Posted on November 19, 2009
Buried in Peter Goodman's 2,300-word tale of Christopher Hall's foreclosure woes is a gem of a program in Philadelphia:

Navigating the news

Posted on November 19, 2009
The indispensable Abnormal Returns has a smart post up on aggregation:

Fire the lot of ?em!

Posted on November 19, 2009
John Hudson has an interesting round-up of responses to the signs of humanity from Goldman Sachs on Tuesday: I'm definitely the outlier in a sea of commentators saying that they're tiny, meaningless, and an attempt to deflect attention from the bigger issues surrounding the bank.

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Counterparties

Posted on November 19, 2009
Everything you ever wanted to know about delta-hedging and options vs cash equities strategies -- TITGR

Disclosing journalists? pasts

Posted on November 19, 2009
Dear Henry, I'm not annoyed by you! How could I be, when you call me the "king of financial bloggers" no fewer than four times in one piece? I think you've created a powerful, innovative, and disruptive franchise in The Business Insider, which employs some very smart people and publishes some great journalism -- even if sometimes it's neither checked nor correct...

The unbearable pain of 0.01%

Posted on November 19, 2009
Bill Gross isn't earning much interest on his cash: in fact, he's only earning 0.01%. Tell us, Bill, what's an appropriate metaphor to explain how it feels to earn such a low interest rate?

Overdraft opt-in messages: Brace yourselves

Posted on November 19, 2009
It's good that we're moving to an opt-in system for debit-card overdrafts. But in order to get there from here I have a feeling that we're going to have to dodge a lot of, um, personalized communications from our banks:

Providing credit to the poor

Posted on November 18, 2009
Megan McArdle is cutting up her credit cards, but she doesn't want to force anybody else to do the same thing. She responds to my sentiment that credit should come from loans, not cards, thusly:

How the AIG bailout scuttles chances for a second stimulus

Posted on November 18, 2009
Paul Krugman is right to be worried about the unintended consequences of the AIG bailout:

Ben Stein?s sleazy paymasters, cont.

Posted on November 18, 2009
Flâneur points me to the 35-page staff report for Jay Rockefeller on "Aggressive Sales Tactics on the Internet". It concentrates on three extremely sleazy companies, all based in Norwalk, Connecticut: Affinion, Webloyalty, and our old friends Vertrue, the employers of Ben Stein...

Counterparties

Posted on November 18, 2009
Who sold credit protection on AIG to Goldman Sachs? They're a huge and unknown beneficiary of the bailout -- NYT

Democratizing art

Posted on November 18, 2009
I had a very interesting lunch with Jen Bekman of 20x200 last week -- a woman who has just raised $825,000 in venture funding to help expand her project of bringing art to everybody. "I want anyone who's educated and even remotely affluent to feel self-conscious if they don't have an art collection that they can talk about," she says, and to that end she's selling limited-edition art starting at just $20 for an 8"x10" C-print in an edition of 200...

Kicked out of finance, and into journalism

Posted on November 18, 2009
Up until yesterday, Michael Whitney was a presenter on Bloomberg TV; he would occasionally get his byline on Bloomberg News stories. Whitney was fined $55,000 last year by the CFTC and is subject to a permanent injunction, after being charged with false reporting and attempting to manipulate natural gas prices.

How US investors can play the carry trade

Posted on November 18, 2009
When I wrote my blog entry on currency ETCs yesterday, I wasn't aware of the various carry-trade products available on US exchanges. But after a very informative conversation with Morningstar's Bradley Kay this morning, I'm now much more up to speed. And while there's nothing in the US quite like the UK products, there are still a fair few carry-trade vehicles to choose from.

Understanding the AIG decision

Posted on November 17, 2009
As Dean Baker notes, Neil Barofsky's report on the 100% payments to AIG's counterparties is the news of the day. It's sexy stuff, revisiting the dramas of the week of Lehman's collapse, and of course going into great detail about the way in which the crisis's designated villain, Goldman Sachs, walked away with billions of dollars of taxpayer money despite saying they never asked for it nor particularly needed it.

Understanding currency ETCs

Posted on November 17, 2009
I was confused yesterday about currency ETCs; after a detailed conversation with Nik Bienkowski of ETF Securities, I think I understand them a bit better.

Counterparties

Posted on November 17, 2009
49 million Americans lack dependable access to adequate food, the largest number ever -- Alea

Are Obama?s policies working?

Posted on November 17, 2009
The iq2us website is rather horrible, all flash-based and white-on-black and lacking permalinks, but tonight's debate was well worth attending all the same. The motion was "Obama's economic policies are working effectively", and the interesting thing about it was that it wasn't a left vs right thing at all.

Goldman?s human face

Posted on November 17, 2009
Today the squid is showing its human face -- you know, as opposed to wrapping itself around one. Goldman deserves to be applauded for two things today: first of all Lloyd Blankfein's admission and apology that his bank "participated in things that were clearly wrong and have reason to regret", and secondly its $500 million 10,000 Small Businesses Initiative, under which it will team up with community colleges, business organizations, and Community Development Financial Institutions (CDFIs) -- all with the aim of removing barriers to growth in the small-business sector of the economy.

How UBS chooses the names it will give the IRS

Posted on November 17, 2009
Lynnley Browning looks today at the 4,450 clients that UBS is going to give up to the IRS, going down the list of characteristics that UBS is going to look for when deciding which of its accounts to choose.

What?s Berkshire Hathaway?s expected life?

Posted on November 17, 2009
Berkshire Hathaway has a lot of equity: its book value is about $125 billion. And since equity is forever, it makes sense for Berkshire to have a very long time horizon when it comes to buying assets. But still:

Can options spikes be a coincidence?

Posted on November 17, 2009
Whenever there's a surprise takeover bid at a significant premium to the (formerly) prevailing stock-market price, dozens of journalists and bloggers immediately pull up options-volume data. Much of the time, they discover a suspicious spike in options volume just before the deal was announced...

A Broad retreat

Posted on November 16, 2009
Last year, I applauded Eli Broad for not donating his art to Lacma, and instead keeping it in his own foundation, whence it could and would be lent out around the world. I even suggested that it might make more sense to donate art to the Broad Foundation than to a museum:

Reasons not to tax interest payments

Posted on November 16, 2009
Philosophically speaking, why don't we tax corporate interest payments? (Practically speaking, the answer is that it's politically impossible.) So far, the answers have fallen into three broad categories.

Can ETCs replicate the carry trade?

Posted on November 16, 2009
Now I'm confused. Back on November 6, the FT's Denise Law ran an article about a set of new currency ETCs which are going to be listed on the London stock exchange -- think ETFs, but for foreign exchange. She quoted Nik Bienkowski, the chief operating officer at ETF Securities, which has created these instruments:

It?s a large world after all

Posted on November 16, 2009
Ultimi Barbarorum's little-known other author, "Bento", has a great blog entry up about the iPhone in China. Bento lives in Shanghai, and explains very simply why official Chinese iPhone sales are low: official Chinese iPhones are artificially crippled, thanks to a law banning phones with wifi capability...

How can the government reduce unemployment?

Posted on November 16, 2009
Nouriel Roubini says the federal government has to be much more aggressive on the unemployment front:

What are the arguments for privileging debt?

Posted on November 16, 2009
Three cheers to Jim Surowiecki for unambiguously adding his voice to those who would abolish the tax-deductibility of interest payments:

Counterparties

Posted on November 14, 2009
Fox Business is in 50m households, Bloomberg TV in 60m. Neither can crack 35,000 viewers per show -- VF

Bair?s chutzpah

Posted on November 14, 2009
Many thanks to Paul Solman for putting my question to Sheila Bair. Her answer is quite astonishing in its chutzpah:

Counterparties

Posted on November 13, 2009
ISDA's attempt to fire back at Dodd is a damp squib. Expect no substantive opposition from this front -- ISDA

The too-big-to-fail debate continues

Posted on November 13, 2009
Economics of Contempt defends too-big-to-fail banks:

Two safe havens

Posted on November 13, 2009
I got two smart responses to my assertion that there's no safe haven for investors these days. Jared Woodard at Condor Options responded with 1,500 words on how investors in an S&P index fund can buy put options to protect their downside: "any hedging at all is better than none," he writes...

Awarding online journalism

Posted on November 13, 2009
I got a phone call this morning from one of the judges of the Loeb awards. A Loeb is one of the high-prestige gongs that important business and financial journalists love to award to each other, and it's a fundamentally conservative animal: the NYT and WSJ always get lots of nominations and awards, and the winners are generally the kind of long-form investigative pieces which, say, the Pulitzer jury loves as well.

The Fed cracks down on overdrafts

Posted on November 12, 2009
Go Fed! In a very CFPA-ish move, the Fed has now announced that effective July 1, no bank can impose overdraft fees on its customers for ATM or debit card transactions, unless and until they explicitly ask for that "protection". And they even come with a quote from Ben Bernanke talking about "an important step forward in consumer protection", which is not the kind of language we're used to hearing from Fed chairmen.

One question for Sheila Bair

Posted on November 12, 2009
Paul Solman is taking questions for Sheila Bair. If I could ask her just one question, it would be about her actions taking over WaMu and wiping out all its senior unsecured debt. That's the wholesale interbank market right there, and in the wake of the WaMu collapse, banks pretty much stopped lending to each other, fearful that at any point Bair could step in and wipe out billions of dollars in assets...

Micropayments datapoint of the day

Posted on November 12, 2009
Joe Brancatelli reports on airline fliers' stubborn refusal to pay even a nominal sum for wifi:

The shipping industry?s $350 billion debt

Posted on November 12, 2009
Landon Thomas's story on dodgy shipping loans has some absolutely astonishing numbers, the biggest of which is simply the size of the market, which he pegs at a whopping $350 billion.

A child of 8 could be traded for that!

Posted on November 12, 2009
Talk about alternative asset classes: Venetia Kapernekas, a New York art dealer, has traded her claim to part-ownership of two Damien Hirst works in return for custody of her 8-year-old daughter. Need I add that one of the Hirsts is entitled "In this terrible moment we are victims clinging helplessly to an environment that refuses to acknowledge the soul"?

Goldman Sachs?s not very charitable foundation

Posted on November 12, 2009
Geraldine Fabrikant gets her hands on the 2008 tax filing for the Goldman Sachs Foundation today, and it's pretty astonishing stuff:

Will small banks replicate big banks?

Posted on November 12, 2009
Mark Gimein says that we shouldn't worry too much about the problem of too-big-to-fail, because the alternative to one big bank failing is lots of small banks failing:

Strange bedfellows: Jon Stewart and Patrick Byrne

Posted on November 12, 2009
Remember the Jon Stewart interview of Jim Cramer where Stewart pulled out a secret weapon to unleash upon his unsuspecting guest?

The Goldman Sachs Foundation?s torrid 2008

Posted on November 12, 2009
Goldman Sachs has provided Reuters with a copy of the Goldman Sachs Foundation's 2008 tax return. Why the NYT didn't just put it online I have no idea, but in any case here it is, all 297 pages of it.

Happy 10th birthday, Financial Modernization Bill!

Posted on November 12, 2009
Ten years ago today: SEC. SUMMERS: Let me welcome you all here today for the signing of this historic legislation. With this bill, the American financial system takes a major step forward towards the 21st century, one that will benefit American consumers, business, and the national economy for many years to come...

Rent-to-buy

Posted on November 11, 2009
If Forbes writes something on rent-to-buy schemes in March and then the WSJ puts up a blog entry in November along similar lines, even the stretchiest blogger might have difficulty discerning a trend. But that doesn't mean it isn't a good idea. In fact, it would be great if we saw much more of it in this country.

Robert Benmosche, frustrated civil servant

Posted on November 11, 2009
I'm not at all convinced that any CEO is ever worth a $10 million pay package, but if it wasn't clear when that deal was signed, it became obvious very quickly that Robert Benmosche was something of a prima donna. That's far from unusual in people earning 8-figure salaries: indeed, being the recipient of such a massive emolument tends to exacerbate such tendencies in anybody.

Counterparties

Posted on November 11, 2009
Those impenetrable Bloomberg headlines -- Economist

The end of safe havens

Posted on November 11, 2009
I'm surprised to see this coming from Ryan Avent: If everyone is certain that crises are going to be bigger and more frequent, and if everyone is certain that governments won't be able to afford to bail everyone out the next time around, then shouldn't everyone be busy limiting their exposure to risk? And shouldn't that then reduce the likelihood, frequency, and cost of future crises?

Counterpartys

Posted on November 11, 2009
$1.5 Million In Blatant Insider Trading Profit Following 3Com Acquisition -- ZH

The decline of credit cards

Posted on November 11, 2009
Ezra Klein, on what he considers a vicious cycle in credit cards:

Right-to-rent becomes a reality

Posted on November 11, 2009
Something has happened on the right-to-rent front! It comes from Fannie Mae and it's called deed-for-lease, and I'm basically in full agreement with Dean Baker on this one: it's a step in the right direction, but it's still a far cry from what should be happening...

Unrepentant bankers

Posted on November 11, 2009
Andrew Ross Sorkin confirms what most of us have long suspected:

Is unemployment only 9.5%?

Posted on November 10, 2009
You remember Friday's gruesome employment report, right? Floyd Norris has taken a second look at it, and found something quite surprising:

How to fix the US financial system

Posted on November 10, 2009
I had a very interesting conversation with Bob Pozen yesterday evening; his new book is out now, and I highly recommend it. It's the first crisis book to make a detailed series of specific recommendations about what needs to be done going forwards -- or, in the words of the book's subtitle, "how to fix the US financial system".

Wal-Mart does not save families $3,100 a year

Posted on November 10, 2009
Jim Ledbetter, it's very easy to avoid getting into idiotic arguments with Dennis Kneale on CNBC: just stop going on CNBC. But at the same time, it's worth pushing back much more on the ludicrous claim that Wal-Mart saves the average American family $3,100 a year:

Executive perk of the day, Vonage edition

Posted on November 10, 2009
Michelle Leder finds one of the weirdest executive perks yet in the employment contract for Vonage CEO Mark Lefar:

The Dodd bill: Generally very good

Posted on November 10, 2009
I like a very great deal of Chris Dodd's proposed regulatory reforms, and overall the Dodd bill is I think a significant improvement on Treasury's proposals. A good place to start is the discussion draft, but there's a great deal going on here (the full bill is 1,136 pages), so expect lots more details to emerge in the coming days and weeks...

The idiocy of double secret probation

Posted on November 09, 2009
Bill Black makes mincemeat of the idea that the government can and should keep a top-secret list of systemically-dangerous institutions which are subject to ?heightened prudential standards?:

Chart of the day, unemployment edition

Posted on November 09, 2009
Another great chart from the people at nytimes.com: this one shows how unemployment has risen among various different segments of the population, since January 2007. Here's what's happened to the 12-month average employment rate for black men without a high-school degree under 25 years old:

Berlin

Posted on November 09, 2009
In September, Tyler Cowen picked Berlin as his "preferred exile": There would be plenty of art and music, lots of smart people to talk to, access to other good locales, and the near-certainty of public order, yet with bearable winters and good health care...

Putting source documents online

Posted on November 09, 2009
Gabriel Sherman has a long profile of Andrew Ross Sorkin, which spends a lot of time talking about Sorkin's problematic status within the NYT in general and the Sunday Business section in particular. But all big companies have internal politics. What's interesting is what the story says about the NYT's devotion, or otherwise, to serving its readers by giving them the information they want.

Ken Lewis and the regulators

Posted on November 09, 2009
The WSJ has an interesting Ken Lewis profile today:

Counterparties

Posted on November 09, 2009
"Borrowers who exhibited lower comprehension and less suspicion were more likely to have adjustable-rate mortgages" -- SSRN

Political risk in microlending

Posted on November 09, 2009
Elyssa Pachico has an excellent round up of the No Pago movement in Nicaragua, which is threatening the future of microfinance in that country. While most of the reporting on the issue has been pretty one-sidedly in favor of the microlenders, mass protests don't rise out of nothing, and in this case the initiating outrage seems to have been the arrest of six people with overdue debts in Jalapa by a lender called Pro Credit.

Cash for clunkers datapoint of the day

Posted on November 09, 2009
Good on the AP for FOIAing the details of how cash-for-clunkers played out:

When demand slopes upwards

Posted on November 08, 2009
At least between, say, $3 and $6 per bottle:

Airport security datapoint of the day

Posted on November 08, 2009
Since TSA's creation, 10 passenger screening technologies have been in various phases of research, development, test and evaluation, procurement, and deployment, but TSA has not deployed any of these technologies to airports nationwide... Deployment has been initiated for four technologies--the ETP in January 2006, and the advanced technology systems, a cast and prosthesis scanner, and a bottled liquids scanner in 2008...

Doing due diligence on Galleon

Posted on November 07, 2009
I'm late to Sam Jones's article about investors who did due diligence on Galleon and decided to stay away, but I think it raises a number of silly ideas which ought to be put to rest.

Mutual fund fee datapoint of the day

Posted on November 06, 2009
What happened to mutual-fund fees and expenses in the wake of the financial crisis? Lipper has crunched the numbers, and it seems that the tumble in the stock market didn't have much effect on expenses:

John Reed apologizes

Posted on November 06, 2009
John Reed wasn't even on the list of people who I thought should apologize for their role in creating the bubble which led to the financial crisis. But good for him for doing so:

Headless BofA

Posted on November 06, 2009
Mark DeCambre is right: it seems that BofA is going to remain headless at least until Thanksgiving. No outsider seems to want the job -- the list of people who have turned it down seems to include everybody who works or has ever worked at JP Morgan, plus former BofA executive Michael O'Neill, who went on to head up both Barclays and Bank of Hawaii...

A global problem with no solution

Posted on November 06, 2009
Mohamed El-Erian, the CEO of Pimco, sent me a note this morning which sums up the dire straits of the economy, as revealed in today's employment report, in one sentence: The problem is that very few people in DC are thinking of this as a structural challenge...

10.2%

Posted on November 06, 2009
Wow:

Counterparties

Posted on November 06, 2009
The unemployed face the same odds of getting a job as an applicant faces getting into Harvard -- CNN

Why there can?t be a cap on bank capital ratios

Posted on November 05, 2009
I don't understand much of the mathematics in Nassim Taleb's new paper, co-written with Charles Tapiero. And I fear that the paper's main point is hidden in a blizzard of equations:

CEOs: Founders beat out managers

Posted on November 05, 2009
We're less than two months from a New Year's where a 9 ticks over into a 0, and so that means all manner of decade retrospectives. (And still we haven't come up with a name for this decade!) Fortune is getting into the game early, naming Steve Jobs its CEO of the decade, for his work at Apple.

Those lucrative interest-rate hedges

Posted on November 05, 2009
Peter Eavis notes something quite astonishing today:

Counterparties

Posted on November 05, 2009
Want to kill bankers? There's an app for that -- American Banker

Price elasticity datapoint of the day, citizenship edition

Posted on November 05, 2009
John Quelch reports: Legal immigrants to the US who are resident for five years (or three years for those who marry a US citizen) can apply for US citizenship. Currently, citizenship application and processing fees in the US are $675 per person, up from $60 two decades ago...

A brief history of Goldman Sachs heads

Posted on November 04, 2009
With Jon Corzine losing the governorship of New Jersey yesterday, it was yet another bad day for former heads of Goldman Sachs. It's worth running down the list, since the venerable pairing of John Weinberg and John Whitehead came to an end in 1990.

Building boring nationalized companies

Posted on November 04, 2009
I'm back, relaxed, after the longest amount of time I've spent off-blog in three years. Trying to get back up to speed this morning, I noticed an interesting twist in the annals of bailed-out too-big-to-fail companies: RBS is being forced to sell some core assets, like its auto-insurance operations, which give stability to its earnings...

Counterparties

Posted on November 04, 2009
Konczal has a great quote from Elizabeth Warren's personal-finance book. Yes you can spend more on the small things! -- Rortybomb

The roots of the coming crash

Posted on November 04, 2009
I've had a vague sense of late that there's a connection between the weak dollar, on the one hand, and rising asset prices, on the other. But I took some comfort in that: prices aren't really going up as much as they look, it's just that the dollar's going down, so everything looks good in dollar terms...

Schwab?s ETF innovation

Posted on November 04, 2009
Charles Schwab has an interesting new idea: ETFs which are commission-free for Schwab brokerage clients. Ron Rowland is enthusiastic:

Gone fishing

Posted on October 22, 2009
This is getting a bit surreal: both Clusterstock and Dealbreaker are now phoning up Charlie Gasparino asking for his reaction to my tweets. It's clearly time for me to go on holiday. So I'm off to Spain, back November 4. If you don't expect any blogging between now and then, you won't be disappointed.

Counterparties

Posted on October 22, 2009
The Fed's pay proposals are out: a whole lot of nothing? -- Federal Reserve

Unemployment datapoint of the day

Posted on October 22, 2009
The length of time the average unemployed person has been without a job has been hitting new record highs for a while; it's now managed to pass the 6-month mark. That's much higher than any previous peak in this data series. And I fear that the only way it's likely to come down any time soon is as these people become so demoralized that they take themselves out of the labor force altogether.

Analyzing Galleon?s returns

Posted on October 22, 2009
The Pragmatic Capitalist gets his hands on Galleon's monthly returns, and finds them very suspicious:

Ethics laws can?t work

Posted on October 22, 2009
Richard Painter, who drafted and approved the ethics agreement signed by Hank Paulson when he became treasury secretary, has come to the conclusion that such agreements can never really work as intended:

When failed genius is rewarded

Posted on October 22, 2009
The reaction to the news that John Meriwether is setting up a third hedge fund has been entirely predictable, especially when Sam Jones's story deadpans that "the fund is expected use the same strategy as both LTCM and JWM to make money". (Meriwether's first two funds, of course, were spectacular failures...

Gold-denominated hedge funds

Posted on October 22, 2009
For a while now, hedge funds have been creating share classes denominated in gold. By far the biggest fish in this pool is John Paulson, and as a result he's been buying gold, literally, by the ton. (Indeed, with gold at $1,050 an ounce, and 29,167 ounces per ton, Paulson's $4...

The mortgage-servicing writedowns

Posted on October 22, 2009
Bloomberg's Michael Moore has lots of detail today on the treatment of mortgage servicing rights in banks' earnings reports. No, wait, it's actually interesting! Especially when you look at the numbers involved.

The importance of Volcker

Posted on October 21, 2009
There's a curious coincidence of newspaper stories today: just as the NYT's Louis Uchitelle writes a long piece about Paul Volcker being marginalized, the WSJ runs a story about how he could end up being responsible for what would arguably be the single most important piece of economic policy implemented by the Obama administration.

Art market datapoint of the day

Posted on October 21, 2009
Law firm Heller Ehrman spent millions of dollars putting together a corporate art collection during the biggest bull market the art world has ever seen, before going bankrupt at the end of last year. Now that art collection is being auctioned off:

How Paulson gave Goldman the Lehman heads-up

Posted on October 21, 2009
The secret Paulson-Goldman meeting wasn't the only time that Hank Paulson treated his buddies at Goldman Sachs especially well while at Treasury. In fact, it wasn't the only time he did so before he got the now-famous waiver.

Counterparties

Posted on October 21, 2009
Average credit score by email domain. LOVE this chart. -- Credit Karma

Wine: the price of the unknown

Posted on October 21, 2009
How many people, when looking at a wine list, would spend $80 on a timorasso, or $90 for sagrantino? (No, I've never heard of them either.) According to the 28-year-old wine director for Union Square Cafe, as channeled by Ryan Flinn, it's a sizeable number: "drinkers are apt to try something they?ve never heard of if it?s less than $100".

When too big to fail isn?t systemically dangerous

Posted on October 20, 2009
Economics of Contempt finds something very odd in the legislation that Tim Geithner has proposed for beefing up the regulation of too-big-to-fail institutions, or "Tier 1 FHCs" as they're known in the jargon:

Annals of regulatory emasculation, ratings agency edition

Posted on October 20, 2009
Reuters is reporting today that Congress has "watered down" the bill regulating the ratings agencies. What's unclear is whether there's anything left at all:

The doomed Grayson/Clay/Miller CFPA amendment

Posted on October 20, 2009
Mike Konczal has discovered an interesting amendment to the Consumer Financial Protection Agency bill, which would force the new agency to do an annual "financial autopsy" on a year's worth of bankruptcies and foreclosures, to see whether any financial products turn out to have been particularly to blame...

Personal jet usage datapoint of the day, Ken Lewis edition

Posted on October 20, 2009
2008 was not exactly a pleasant, relaxing year for Ken Lewis. You can see how he might have spent a large part of the year on the BofA corporate jet, but it's hard to see how he would have had much time to do so for personal reasons.

The secret Paulson-Goldman meeting

Posted on October 20, 2009
Andrew Ross Sorkin's new book is out today, and breaks some pretty stunning news, dating from the end of June, 2008. At this point, we're still months away from the now-famous but then-secret waiver, issued in mid-September, which allowed Hank Paulson to talk to Goldman Sachs; he'd promised not to do that when he moved from Goldman to Treasury.

Honest bank of the day: Banco Popular

Posted on October 19, 2009
Banco Popular's earnings this morning were pretty bad, and its press release reflects that. The headline is simply "Popular, Inc. Reports Financial Results for the Quarter and Nine Months Ended September 30, 2009" -- no crowing there. And the opening paragraph is sober indeed:

Crowdsource the CFPA!

Posted on October 19, 2009
The credit unions and the banks have won: thanks to something known as the Miller-Moore amendment, the Consumer Financial Protection Agency will now be barred from overseeing all but a handful of credit unions and any bank with less than $10 billion in assets...

Counterparties

Posted on October 19, 2009
Hank Paulson's call logs. This is the kind of insanity that results when you refuse to use email. -- Sorkin

Those rising falling interchange fees

Posted on October 19, 2009
Something smells very fishy to me about this chart in today's WSJ:

Spinning off Banamex

Posted on October 19, 2009
Well done to the FT's Adam Thomson for getting the word "candescent" onto the front page of today's FT -- it's not a word we see nearly often enough. He uses the word in the context of the debate over Banamex, which, if various lawsuits go against Citigroup, could force the US bank to divest itself of its highly-profitable Mexican subsidiary.

Levitt and Dubner on the northern spotted owl

Posted on October 17, 2009
In light of all the controversy over the war against environmental science being waged by Superfreakonomics, I'll add only that this comes as no surprise to me, since something similar (albeit on a much smaller scaled) can be found in the first book. I actually did some reporting on this when Freakonomics first came out, but since it was buried in a 4,400-word review on a little-read personal website, it's hardly surprising that nobody saw it...

Counterparties

Posted on October 16, 2009
CFPA, RIP: NYT > WSJ -- CJR

Dow 10,000 in rhyme

Posted on October 16, 2009
Bill Radke is some kind of genius. Whose bright idea was it that news should be delivered in prose, anyway? This poetry thing is seriously disruptive technology.

Is Russ Feingold joining the war on vulture funds?

Posted on October 16, 2009
Remember the silly war on vulture funds being waged in the UK and, in the US, by Congresswoman Maxine Waters? Well, I have good news and bad news. The bad news is that it's making its way into the US Senate: Russ Feingold, the chairman of the Subcommittee on African Affairs, is thinking of introducing legislation of his own...

Ken Lewis?s symbolic pay cut

Posted on October 16, 2009
I love the fact that Kenneth Feinberg has made his largely symbolic cut to Ken Lewis's 2009 payout:

Dow 10,000: It?s do-over time!

Posted on October 15, 2009
Remember the grim days of March? You should. Millions of small investors across the country were staring aghast at their brokerage statements, with one thought going through their heads: "I should never have invested in the stock market". They'd done so on the advice of people who had assured them that stocks always go up over the long term, and then they'd seen their holdings decimated...

Great moments in punditry, Lenin edition

Posted on October 15, 2009
Jim Cramer has decided that people upset at Wall Street bonuses are in fact revolutionary Marxist-Leninists, intent on "stringing up guys like John Mack and feeling great about it". A brief edited transcript, if you can't bear to watch the whole thing:

Bicycling paradise of the day

Posted on October 15, 2009
Copenhagen:

Thursday links are more eclectic than usual

Posted on July 10, 2009
http://bit.ly/4lB2lS I'm sure I'm way late to this, but I just found Rob's Transformers 2 FAQ and boy is it genius Bundanoon, Australia, may be first town in world to have banned bottled water Fischer Black, prescient futurist USA Today with the best story yet on the "overdraft protection" racket If this happens , I'll cancel my print subscription...

The House of Representatives vs automaker bankruptcy

Posted on July 10, 2009
But then along comes the House to make the Senate look great : A majority of House members have signed onto a bill to reverse the closing of 789 Chrysler dealerships and block General Motors Corp. from closing more than 1,300. ... But it's still utterly depressing that Congresspeople are out signing the Automobile Dealer Economic Rights Restoration Act of 2009, which is designed to do an end-run around one of the most successful bankruptcy proceedings in living memory, and which would singlehandedly put the US auto industry onto yet another road to ruin.

What?s the price-quality correlation for bicycles?

Posted on July 09, 2009
But the only people buying $2,500 bikes should be people who can easily afford to pay cash for them: no one should be taking out a loan for that kind of luxury. ... I’ve spent the past day in San Diego (that’s why blogging’s been light) and my mode of transport while I was here was a rented Bianchi Cortina — a very nice bike which retails at $429.

Is McQuade now Pandit?s heir apparent?

Posted on July 09, 2009
Here's his latest press release: Vikram Pandit, Chief Executive Officer of Citigroup, today announced several senior management changes to support the company?s business and strategic priorities and to ensure that proper management is secured to lead these efforts...

Urban underfunding datapoint of the day

Posted on July 09, 2009
Anecdotally (which means that I don't have any empirical data on this, but it feels this way), transportation spending is second only to defense spending when it comes to waste, inefficiency, and a general syndrome of money going to politically-influential districts rather than where it would make the most sense...

Tuesday links underperform

Posted on July 08, 2009
Justin Fox wants contingent stimulus legislation which kicks in if the unemployment rate passes 11% Which did better over the past 15 years: Cash or Stocks ? ... The legal reasoning why CDS are not insurance contracts Jen Chung with a great roundup of the latest developments in the fiasco that is the WTC site "Ten years ago, 55% of The Atlantic's revenues derived from print advertising.

Does Felix have criminal tendencies?

Posted on July 08, 2009
But if I were a prosecutor, I'd have no problem convincing a jury of 12 that a "reasonable" banker should've known that lending money to people of dubious credit risk, with low loan-to-value ratios, in an inflated market would've been a recipe for disaster...

Who gets hurt by toxic mortgages?

Posted on July 08, 2009
Mike at Rortybomb explains just how dangerous mortgages can be, even to people who avoid the toxic ones: If I was a degenerate crackhead who snuck into your neighborhood and mugged you for $50, the Wall Street Journal Opinion Page would want me thrown in jail...

Behavioral economics question of the day

Posted on July 08, 2009
And of course I have a human tendency to want to spend that money now, even though I know a monster credit-card bill is going to be arriving in a few weeks. So the question is: how do I maximize the utility of having use of those funds until the credit-card bill is due, while minimizing the temptation to just go out and spend all that cash?

Wine market datapoint of the day

Posted on July 08, 2009
Some good news is coming out of California: Total U.S. wine sales rose about 5% in terms of volume in the first quarter from a year earlier, but wines priced at $25 a bottle and up fell about 12%, estimates Jon Fredrikson, an industry consultant with Gomberg, Frederikson & Associates in Woodside, Calif...

McNamara and model risk

Posted on July 07, 2009
Philip Delves Broughton notes that Robert McNamara, one of Harvard Business School's most notorious graduates, basically did in the field of war what Wall Street quants did in the field of finance: The journalist David Halberstam wrote that McNamara mistrusted people who did not speak his language of statistics and hard data...

When journalism misses the big picture

Posted on July 07, 2009
Or think about Bob Rubin, who famously told Carol Loomis that he'd never heard of the notorious liquidity puts which ended up all but destroying Citigroup until after it was far too late -- despite the fact that Rubin, more than any other individual, was meant to be the person taking the big-picture view of the bank's overall risk profile...

How did the automakers emerge from bankruptcy so quickly?

Posted on July 07, 2009
Micheline Maynard has a good 1,000-word article today on the surprising fact that both GM and Chrysler managed to exit bankruptcy in record time. ... And is this a heartening precedent for the wave of future bankruptcies which seems inevitable when all those leveraged loans mature over the next four or five years?

Bankslaughter

Posted on July 07, 2009
Paul Collier is worried about the skewed incentives built in to any bonus system: the upside of taking risk -- a big bonus -- is much bigger than the downside if the risk blows up: The inherent problem facing shareholders is that incentive payments cannot go negative...

How to reform overdraft fees

Posted on July 07, 2009
J Mann asks what exactly I'm proposing, and what I think the consequences might be: Are you thinking about (1) requiring banks to allow customers to opt-out of overdraft protection (or maybe requiring opt-in); (2) setting maximum overdraft fees, but permitting banks to decline to provide ovedraft financing altogether; or (3) requiring banks to provide overdraft financing to all checking customers and setting maximum rates for that financing? It seems to me that the likely consequences would be some combination of (a) banks declining to offer overdraft financing, which would leave people paying bounced check fees to their payees; (b) banks reinstuting minimum balances for checking accounts; and/or (c) banks removing interest and other benefits from checking accounts.

Why Mark Thoma doesn?t accept advertising

Posted on July 07, 2009
I don't think it's wrong to take money from outside sources for being an economist, just because the state pays you to be an economist. ... But Smith's blog has lots of ads on it, which means that she's much more likely to find herself the recipient of takedown notices, C&Ds, and other nastygrams.

Regulatory arbitrage attempt of the day

Posted on July 07, 2009
Patrick Jenkins gives a good example of why insurance is not a sensible way to think about or regulate financial products: Investment banks, including Goldman Sachs and Barclays Capital, are inventing schemes to reduce the capital cost of risky assets on banks' balance sheets...

Commercial real estate datapoint of the day

Posted on July 07, 2009
Worldwide Plaza is being sold after all (a previous deal fell through ), and at what looks like a seriously knock-down price: Deutsche Bank AG has agreed to sell Worldwide Plaza, a 1.8 million square-foot skyscraper in New York City, for $600 million to developer George Comfort & Sons and partner RCG Longview...

Why insurance commissioners should not regulate CDS

Posted on July 04, 2009
Just like with the interest-rate swap, if the spreads on Massachusetts' CDS had tightened in, then the CDS contract would have cost Harvard a lot of money -- protection buyers are just as subject to margin calls as protection sellers are (but as buyers of insurance products are not)...

Thursday links take a different tack

Posted on July 03, 2009
Morningstar's John Rekenthaler defends target-date funds from my attack Richard Florida celebrates the past and future decline in homeownership Weird: the iShares California Municipal Bond ETF is up this year , even as the Aggregate Bond Fund is down What is Seaweed Survival , how did it end up being owed lots of money by Crabtree & Evelyn, and why does it seem to have zero online presence? How Goldman Sachs is like the delivery guy from Empire Szechuan

The limits of economic policy

Posted on July 03, 2009
Are the financial markets in denial about how soon the recovery will come and how impressive it will be? Mohamed El-Erian, for one, thinks so, and he points to the unemployment rate as a key reason why things are not going to get noticeably better any time soon:

Weekend infoporn

Posted on July 03, 2009
Well that's annoying. I just wrote a very long blog entry about Brad Setser's wonderful multimedia extravaganza over at CFR.org -- click here and then click on "Chapter III: Motion Charts". And then when I tried to post it, it disappeared entirely. So here's the short version: all four of the wonderful Gapminder-style charts (household balance sheets, financial failures, global imbalances, and economic power shifts) are great, but my favorite is the financial failures one, which shows banks' capital, assets, and market capitalization over time.

How driving a car into Manhattan costs $160

Posted on July 03, 2009
In the world of urban planning, there are few things hairier than transportation hypotheticals. When NYC pedestrianized Broadway in Times Square and Herald Square in May, the transportation commissioner said that traffic speeds would go up -- but now it seems that we won't know until December at the earliest whether that's actually true...

Wednesday links exaggerate for effect

Posted on July 02, 2009
" I'm coming to the worrying conclusion that Katy Perry's song represents a generation of girls who are happy & relaxed" Treasury will give banks $525 million by undervaluing their TARP warrants Hollywood cancels a movie. ... What is the "long, confusing story" of the Bicycle Access to Buildings bill, and what now are its chances?

Why bank fees need to be regulated

Posted on July 02, 2009
Whenever I write a blog entry advocating more and/or better regulation, the laissez-faire types, like Vincent Fernando, have a tendency to come out of the woodwork: I believe we need to keep holding people responsible for their decisions and personal management...

The banks? cunning MBS plan

Posted on July 02, 2009
But it turns out that the banks have been buying up billions of dollars of subprime mortgages, driving up their price. If they carry on doing that a bit longer, the market price will go higher than the price the banks have on their books, and they can then mark their mortgage book to market and report lots of lovely profits.

How AIG FP brought down the world

Posted on July 02, 2009
He tells the story of Gene Park, who examined FP's business at the end of 2005 and found that it was insuring deals which were 95% subprime: Park then conducted a little survey, asking the people around AIG FP most directly involved in insuring them how much subprime was in them...

The scandal of overdraft fees

Posted on July 02, 2009
Bank of America will now assess such things ten times a day, and the NYT's Eric Dash has a good overview of the problem using data from Moebs Services: The most unexpected change has occurred in overdraft fees ? the industry?s most lucrative and controversial charge ? where the typical fee rose to $26 after five years at $25...

Modelling model risk

Posted on July 02, 2009
Paul Wilmott has words of wisdom for anybody in the financial-services industry who's putting a model together: At every stage of valuation and model development you must be asking questions about risk and robustness. ... While mitigating model risk is a very recondite field which very few people have any expertise with; what's more, it doesn't really make money in and of itself.

What Larry Summers did to Harvard?s finances

Posted on July 02, 2009
Nina Munk's VF article on Harvard's endowment isn't online, but the précis is, and it seems that Larry Summers takes a particular beating, being blamed for $1 billion in losses on interest-rate swaps, as well as for meddling with Harvard Management Company's investment strategies and ultimately, with Bob Rubin, being responsible for the departure of Jack Meyer...

The access arbitrage

Posted on July 02, 2009
As I noted in May, if you?re a senior editor at a major news publication, you can expect regular meetings with VIPs up to and including heads of state, substantially all of them off the record. ... So we shouldn't really be surprised by this : For $25,000 to $250,000, The Washington Post is offering lobbyists and association executives off-the-record, nonconfrontational access to "those powerful few" ? Obama administration officials, members of Congress, and the paper?s own reporters and editors.

Moneyball

Posted on July 02, 2009
He's standing between The Moustache, on the left, who has just taken over as deputy chairman, president and chief operating officer of News Corp for a total first-year comp package which could be more than $40 million ; and The Hair, on the right, who was earning about the same when he quit the job ...

Tuesday links reminisce

Posted on July 01, 2009
Michael Jackson tickets were designed to be a collector's item . ... Absolutely bonkers 6,000-word investigation of whether LA vegan restaurants are really really vegan

California: The haves and have-nots

Posted on July 01, 2009
People needing temporary assistance for basic family needs Public Employees' Retirement System ... People in drug prevention, treatment, and recovery services Legislators, legislative employees, and appointees

The FTC?s attack on business opportunity scams

Posted on July 01, 2009
Well done to the FTC for putting some serious resources into attacking business opportunity scams. It doesn’t hedge, it doesn’t say that some are better than others — instead it says in a simple and forthright manner that if someone is advertising a “business opportunity”, even if it’s a celebrity like Adam West, you should [...

Felix Salmon smackdown watch

Posted on July 01, 2009
I've been saying for a while that much mainstream financial journalism is very weak, and that one would in many cases be better off reading blogs instead. But Choire is quite right when he notes: Taibbi at least is explaining (or trying to explain!) complicated financial operations to the real world?while the finance writers and bloggers are often willfully obscure, tradey, impenetrable and even at times useless to any audience who actually isn't working at (or recently laid off from) a bank...

Bond prices finally go online

Posted on July 01, 2009
This section includes general bond market information such as news, benchmark yields, and corporate bond market activity and performance information, descriptive data on U.S. Treasury, Agency, Corporate and Municipal Bonds, Credit Rating Information from major rating agencies, and price information with real-time transaction prices for Corporate Bonds (TRACE), Municipal Bonds (MSRB) and end of day prices for U...

The crazy story of Hernan Arbizu

Posted on July 01, 2009
At this point the story gets seriously crazy: UBS never seems to have informed Arbizu's clients that he had left the firm, and so both Lopez and the Acevedos continued to deal with him, via his cellphone, in the belief that he was their account representative...

The Taibbi debate, in 140 characters or less

Posted on July 01, 2009
But in any case, this is debate in 140 characters or less: HM : For the record, I don't think any article that contains the line "vampire squid sucking the face of humanity" is real journalism. ... It is mass participation that makes it bubble. .....

Why we can?t trust market signals

Posted on July 01, 2009
He's not worried, though: It is now well documented that asset class correlations tend to one during times of economic and financial market distress. 2008 was nothing if not characterized by economic distress and financial market instability. ... And trying to apply an implicit efficient-markets hypothesis these days -- the markets are going up so there must be some good news -- is ludicrous: it's precisely at times like this, when correlations are at all-time highs, that the EMH breaks down entirely.

The economics of vendor permits

Posted on July 01, 2009
Julia Moskin reports on Manhattan street vendors: Of all the gray areas for food vendors ? who are regulated by a cluster of agencies including the Department of Consumer Affairs, the Police Department and the New York State sales tax authority ? permits are the murkiest...

GE Capital datapoint of the day

Posted on June 30, 2009
What's not clear at all is how on earth the US government intends to separate GE Capital from its parent, in line with the current administration's promises that systemically-important financial institutions can't be owned by non-financial companies. GE ended up borrowing disproportionately from the TLGP because it had a disproportionately large amount of short-term liabilities which needed to be rolled over -- in that sense it was even more of a bank than most banks, if your definition of a bank is any entity which borrows short and lends long.

Can the Fed raise rates earlier than expected?

Posted on June 30, 2009
At the margin, a Fed funds rate at 1% or 1.5% is not going to put much in the way of a visible brake on economic growth -- especially not so long as all the Fed's liquidity facilities are still up and running. But by raising short-term interest rates in the Fed funds market, and by keeping long-term interest rates low through quantitative easing, the Fed would be able to act much more decisively if and when inflation fears really started to appear.

MBA, RIP

Posted on June 30, 2009
Philip Delves Broughton on what you really learn at Harvard Business School: Everyone knows what they're best at, but often they think it's of no value. I felt like that when I graduated from HBS, and I was wrong.

Why CRA loans weren?t toxic subprime loans

Posted on June 30, 2009
Mike at Rortybomb wades into the CRA debate with a very good point: toxic subprime loans bear almost no relation to CRA loans.

Video of the day, Swap spreads edition

Posted on June 30, 2009
Nick Gogerty deserves a medal for this: It almost makes you want to find out what a swap spread is. (Via Kedrosky)

Endowment datapoint of the day

Posted on June 30, 2009
Big university endowments like to think that their returns constitute alpha -- a simple outperformance of the market. But it looks increasingly as though in fact there's a large component of beta -- outperforming when the market goes up and underperforming when it goes down.

The Taleb-GQ emails

Posted on June 30, 2009
The Nassim Taleb exaggeration story simply refuses to die.

The upside of being flamed

Posted on June 30, 2009
The Cajun Boy hits the nail on the head when he describes one of the biggest upsides to opening oneself up to the crazies of the internet by blogging: After a while, writing on the internet thickens your skin to the point where you're easily able to easily differentiate between valid criticism and hateful venom-spewing...

Deceased icon datapoint of the day

Posted on June 29, 2009
From the WSJ : After the deaths of other major stars, including Elvis Presley, in 1977, and Kurt Cobain in 1994, around half of outstanding concert tickets were never returned for refund, according to people in the concert business, because fans preferred to keep them as souvenirs...

Latin coup datapoint of the day

Posted on June 29, 2009
but the big picture is clear: Latin American coups are increasingly rare things. The 1960s saw 12 successful coups in the region; the 1970s saw 9; in the 1980s there were 6; in the 1990s there were 3; and so far this decade there has only been one, in Ecuador in 2000...

The new Oscar math

Posted on June 29, 2009
It's bad for the studios -- which will now have even more films to market to the Academy in the hope of winning the award; it's good for media outlets like Variety which get a lot of those marketing dollars; and it's something of a wash for viewers: Americans have tuned out the Oscars not because ?The Dark Knight? didn?t get a nomination, but because the telecast is jammed with obscure awards that they have no say over ? this isn?t ?American Idol? ? and no rooting interest in...

How to sell TARP warrants

Posted on June 29, 2009
Treasury's proposal is essentially a complicated dance with the banks in question, which involves financial models and a slew of outside consultants and which may or may not end up in front of multiple independent appraisers. ... Says Simon Johnson : The only sensible way to dispose of these options is for Treasury to set a floor price, and then hold an auction that permits anyone to buy any part ? e...

A Carney-Ritholtz CRA debate?

Posted on June 29, 2009
Has John Carney found a backer for a public debate with Barry Ritholtz over whether the Community Reinvestment Act was significantly to blame for the credit crisis? Barry wants the loser to pay the winner "any dollar amount between $10,000 up to $100,000", which could make it very interesting.

Monday links sound a bit funny

Posted on June 29, 2009
Rachman: McCain's tweets " make him sound like a peasant " The House Financial Services Committee is going to have a busy July RT @IDDMagazine Cantor Fitzgerald grows its London leveraged finance team Judis makes the distinction between the unemployment rate (less important) and total unemployment ( very important ) A refreshingly sober look at the NYT's finances Does WaPo know from passive constructions ? Steve Kirsch with a great round-up on why fast reactors must be built If I link from my link blog to a blog of links to blogs of links , and that links back to me, will the snake have eaten its own tail?

Why is it so hard to modify a mortgage?

Posted on June 29, 2009
The first is that it's sheer incompetence -- the banks, at least at senior levels, have lots of good will, but they just can't find the staff to get this stuff done. ... The third explanation is somewhere in the middle: that it was always difficult to modify mortgages, that the massive wave of loan-mod applications has made it harder still, and that banks just move slowly, even if they do have good will.

Why architecture isn?t collectible

Posted on June 29, 2009
A great piece of architecture in a desirable location can sell at a premium, and a great piece of architecture which can b e packed up into six containers and reconstructed anywhere in the world will sell for even more. But in general people looking to buy important architecture only want to do so if there's a reasonable chance of them actually living in the house in question -- at least for some of the year.

The CPSC and homeownership

Posted on June 29, 2009
In other words, it will help put a cap on house prices, since speculators and flippers won't be able to buy anything they like armed with nothing but crossed fingers and a NINJA loan. ... Rather, the positive effects of lower homeownership lie elsewhere: in more liquid labor markets; in thinner and happier people (not to mention much less leveraged households); and in less societal inequality between rich neighborhoods where substantially everybody owns their home and poor neighborhoods where substantially everybody rents.

Manhattan property datapoint of the day

Posted on June 29, 2009
Ilaina Jonas reports on commercial property in Manhattan: During the second quarter an additional 4.7 million square feet of office space was put on the market, surpassing the 3.9 million square feet that hit the market in the first quarter. The really scary thing is that this is presented as good news, due to the positive second derivative: The increase slowed significantly in the latter half of the quarter, according to the report released to Reuters on Sunday.

Media goes barbell

Posted on June 29, 2009
Michael Learmonth today has a look at AOL's fast-expanding suite of web properties, with a quote from AOL's Jeff Levick saying that he "will continue to grow these sites and launch new sites". ... My feeling is that there's media jobs are looking pretty much like a barbell these days: you either work for a last-man-standing monolith or else you're part of a small and nimble team.

Customer-gouging datapoint of the day, Bank of America edition

Posted on June 29, 2009
From WaPo : Bank of America this year raised the maximum number of times customers can get hit with overdraft fees from five a day to 10. This seems incredibly short-sighted to me: BofA here is just asking to get slapped down -- hard -- by Elizabeth Warren when she takes over the new Consumer Financial Protection Agency.

Thursday links state the obvious

Posted on June 26, 2009
"Until Tuesday, mortgages were still being processed without appraisal and income verification docs" Thank you, Alan Greenspan, for telling us that US GDP growth is tied to house prices. ... How Goldman hides risks from investors Why newspapers matter: here and here are important domestic stories which need to be fearlessly reported.

Friday links reinvest in the community

Posted on June 26, 2009
Ryan Chittum buries Carney on CRA Yes, you can raise tariffs on countries which don't have carbon caps or taxes Did the WSJ's Robert Thomson really say that "readers are losers in a world of content verticals... society is content horizontal"? Nemo tries valiantly to translate John Jansen into English , with mixed success Krugman refuted Carney's points about the CRA before Carney even made them Jack Welch's reputation takes another downward lurch as he pushes denialist nonsense from the WSJ editorial page Ritholtz weighs in on the CRA debate

On this we agree: CRA loans weren?t the bad loans

Posted on June 26, 2009
Felix Salmon but only for lmi, which was not the locus of the problem John Carney I don't think you get the bubble without the Fed holding down interest rates and a global savings glut You would have had loose lending standards but not a huge demand for mortgage products...

Annals of regulatory incompetence, FSA edition

Posted on June 26, 2009
I cannot remember the details, it was quite lengthy, but the essence was that "The answer should have been one in 52 except that the magician was tricking us and so really we should ignore this factor..." ... But a principles-based regulator is only as good at its employees, and if the FSA's employees are going to be so rule-bound as to insist that 1-in-52 is the only correct answer to Wilmott's question (as opposed to the only in correct answer to Wilmott's question), then you haven't really achieved anything at all.

Paying for failure, TCI edition

Posted on June 26, 2009
Tom Cahill , June 24: Christopher Cooper-Hohn?s $9.5 billion hedge fund proposed cutting fees and easing withdrawal limits to retain clients after top executives quit and it lost 43 percent last year, according to three investors... ... Matthew Bishop , June 26: As The Economist went to press the Children?s Investment Fund Foundation, a charity based in London, was due to announce that it had received a whopping £495m ($812m) in the 2008 fiscal year from TCI, a hedge fund, under covenants built into the fund when it was founded by Christopher Cooper-Hohn in 2003...

Housing datapoint of the day, Sheila Bair edition

Posted on June 26, 2009
If you think of the housing boom as basically running from 1997 to 2007, Bair bought her house halfway through, and put in a total of $444,500 between purchase price and renovations. She then tried to sell it after the housing bubble had burst for $795,000 -- and finally withdrew the house from the market last week in the hope that the market would improve; she was clearly willing to accept no less than $695,000 for the property.

Goldman Sachs responds to Taibbi

Posted on June 26, 2009
To give just two examples, even with the worst will in the world, the blame for creating the internet bubble cannot credibly be laid at our door, and we could hardly be described as having been a major player in the mortgage market, unlike so many of our current and former competitors...

Adventures in naming, misguided tip-sheet edition

Posted on June 26, 2009
Why oh why did Ron Insana have to call his horrible new product Market Movers ? I never liked that name when I was at Portfolio -- in fact I hated it -- but I did live it for two years, and so now I feel there's some kind of connection between me and Insana.

Hummer: Too dirty even for the Chinese

Posted on June 26, 2009
China is likely to block the acquisition of Hummer by Sichuan Tengzhong: Hummer, as an expensive, gas-guzzling sports utility vehicle, would not fit in with the government's policy of encouraging energy-efficient vehicles, the radio said. Could this be the beginning of the end of China importing carbon emissions from the US?

Wednesday links have a sorry ending

Posted on June 25, 2009
The craziest financial-meltdown story yet, complete with septuagenarian kidnappers, an Audi chase, and SEK commandos Arrested for being doored in the 9th Ave bike lane Stop turning my passwords into strings of bullets! Citigroup's mortgage unit will be down for the next two weeks for unscheduled maintenance

Measuring fun

Posted on June 25, 2009
Tyler Cowen raises more questions than he answers in Fast Company: The traditional gauge of economic success is profit, but over time we'll find that such statistics as measures of GDP tell us less and less about broader efforts to improve human well-being...

Why LTV ratios aren?t always a good default predictor

Posted on June 25, 2009
(Or, to put it another way, if you immediately rented the place out, you'd be losing money every month, although you might be making money on a mark-to-market basis if the value of the home was rising quickly.) ... It's hardly surprising that our default rate on those loans is basically zero: our borrowers might have high LTVs, but they're managing to live in Manhattan for a few hundred dollars a month, and you can't beat that deal.

Why credit card interchange fees should come down

Posted on June 25, 2009
Well, for one thing, Shawn Miles , the head of global public policy at Mastercard, has written an essay arguing against them: No matter how loudly the big box merchants claim the mantle of ?Protector of Consumer Interests,? granting big box merchants a collusionary antitrust exemption will have the opposite effect: less credit availability, higher prices, and reduced choice for consumers...

John Carney?s bizarre crusade against the CRA

Posted on June 25, 2009
Carney hones in on a table showing how banks can work with local authorities to help borrowers own their own home and end up saving money in the process. ... Indeed, most of those loans weren't made by banks at all -- they were made by unregulated subprime lenders who had no CRA responsibilities whatsoever.

Mutual fund datapoint of the day

Posted on June 25, 2009
Clearly, these target-date funds -- which are likely to become much more popular if and when the Obama administration enacts opt-out rules for 401(k) contributions -- could do with a bit of regulation: many of them seem to be designed to maximize fund-management fees, through a fund-of-funds structure, while doing very little to actually reduce risk as the target date approaches...

The SEC/CFTC carve up emerges

Posted on June 24, 2009
Swaps asks if I missed the bit of Mary Schapiro's testimony on Monday in which she proposed how to carve up the world of over-the-counter derivatives -- the answer is that yes, I did. But here it is : Stated briefly, primary responsibility for "securities-related" OTC derivatives would be retained by the SEC, which is also responsible for oversight of markets affected by this subset of OTC derivatives.

Matt Taibbi vs Goldman Sachs

Posted on June 24, 2009
He was probably born in a $4,000 suit, he had a face that seemed permanently frozen just short of an apology for being so much smarter than you, and he exuded a Spock-like, emotion-neutral exterior; the only human feeling you could imagine him experiencing was a nighmare about being forced to fly coach...

The Best Picture Oscar gets even less important

Posted on June 24, 2009
What he doesn't mention is that although there might be some marginal boost for film studios who would otherwise not have gotten a Best Picture nomination at all, there is probably going to be a significant devaluation of the actual Best Picture award ...

How commodity indices broke the wheat futures market

Posted on June 24, 2009
This affected the wheat market particularly badly, as explained in footnote 213 of the report, partly because of the ease of storing wheat: Aside from wheat, the other commodity markets in which index traders hold a substantial share of the long open interest are the futures markets for two livestock commodities, lean hogs and live cattle...

Why Citi?s right to raise salaries

Posted on June 24, 2009
The problem with this argument is that without taxpayer guarantees and funding, Citigroup would be unable to give its employees any base salaries at all, or bonuses, or anything but a pink slip. ... At the same time, the stated aim of the Obama administration is to be as hands-off as possible when it comes to its ownership stake in banks -- something which Carney in general supports.

Adventures in covenant-stripping, HCA edition

Posted on June 24, 2009
HCA didn't actually succeed in its request, but it came close, and it seems that HCA's lenders are cooperating with the company: In a more normal credit environment, it would seem unlikely that loan investors would give up their ability to control a borrower's debt-management strategy or grant a company virtually unfettered license to extend maturities without discussing the extension or potential pricing...

Tuesday links are constrained

Posted on June 23, 2009
David Warsh on fiscal corsets The Pension Benefit Guaranty Corporation takes over Lehman's pension obligations Some gloriously nerdy stuff from Rortybomb on options-within-options in reverse converts And does anybody have any advice for a reader looking for an ETF or other easy way to get exposure to Nordic stocks?

Tuesday links lose it all

Posted on June 23, 2009
Lawrence Yun wants to suspend mark-to-market in the mortgage origination industry I'm putting all my money in Dangerous Fund I . ... How fabulous is this Chris Lehmann demolition of Steve Forbes Marilyn Minter only gets better with age On the parallels between Bill Keller and Mao Tse-Tung

Why did Schapiro hire Hu?

Posted on June 23, 2009
Floyd Norris says it's "great news" that the SEC's Mary Schapiro has hired Henry Hu, the intellectual father of the CDS-help-cause-bankruptcies meme: it's "another sign," he says, "that she plans to be an effective regulator". Or maybe it's just that she's desperately trying to stake a claim in preparation for the coming fight with the CFTC over who gets to regulate credit default swaps.

Welcoming the Wall Street brain drain

Posted on June 23, 2009
All that talent is better used just about anywhere else, largely because on Wall Street innovations are kept secret until the point at which they're no longer of any use: Instead of spending their days searching for exotic trades, some of these Wall Street wizards could've been creating drugs, imagining software, or solving energy problems...

Actual candor from Jack Welch

Posted on June 23, 2009
Jack Welch likes to cultivate an image as a straight-talking kinda guy who would never say something to an enclave of CEOs that he wouldn't be happy putting his name to in one of his books or columns. Except, according to the Economist (a/k/a Matthew Bishop): This columnist once heard Mr Welch tell a chief executives? boot-camp that the key was to have the compensation committee chaired by someone older and richer than you, who would not be threatened by the idea of your getting rich too.

Credit card datapoint of the day

Posted on June 23, 2009
It basically makes the same point, in empirical and visual form, that Mike at Rortybomb made in a more theoretical and mathematical form last month . The thing to pay attention to here are the 95% confidence intervals as much as the red and blue lines...

Regulatory datapoint of the day, SEC edition

Posted on June 23, 2009
Well, let me point you, as Exhibit A , to the SEC's policy on loan loss reserves in general, and those of SunTrust in particular: For more than a decade, banks have been restricted by accounting standards and the Securities and Exchange Commission from building capital reserves for loan losses that are likely to occur but difficult to predict...

Adventures in causality, WSJ edition

Posted on June 23, 2009
An eagle-eyed reader spotted this pair of headlines on the WSJ home page this morning: It seems that the dollar is falling because oil prices are going up, and oil prices are going up because the dollar is falling. Clever!

Nuclear power: Going fast

Posted on June 23, 2009
If stranded costs can thus be kept to a minimum, both here and, more importantly, in China, we'll be able to talk realistically not just about stopping to build new coal plants but replacing the existing ones, even the newest ones. And best of all they're eminently affordable: Loewen showed that they could be profitable selling energy at just 5 cents per KwH -- which means that you don't need to price carbon emissions at all to make these power stations economically attractive.

Are CDS holders dooming Gannett?

Posted on June 23, 2009
But boiled down to its essentials, Morgan is making a strong form of the same argument we've been hearing for a while -- that when bondholders are fully (or more-than-fully) hedged in the CDS market, they can have an incentive to push a company into default...

Cap-and-trade datapoint of the day

Posted on June 22, 2009
The Congressional Budget Office (CBO) estimates that the net annual economywide cost of the cap-and-trade program in 2020 would be $22 billion?or about $175 per household... households in the lowest income quintile would see an average net benefit of about $40 in 2020, while households in the highest income quintile would see a net cost of $245...

Hubbard on Kenny

Posted on June 22, 2009
Says Kenny, ?A greater focus on proven approaches to more rapid improvement in health and education may have a significantly greater impact on the quality of life of poor people in poor countries than yet another quest for the grail of GDP growth.? ...

How to tell if your hedge fund is misbehaving

Posted on June 22, 2009
Hedge fund managers have very similar incentives to rogue traders: both of them, if they have a big loss, are going to be tempted to take a huge risk to get back into the black. ... The chances that any given investor will be likely to uncover suspicious activity are so low that it's probably not even worth trying; most likely they'd just end up with false confidence in the fund manager.

New banks: No better than old banks

Posted on June 22, 2009
When the TARP was being unrolled last fall, a simple question was often asked: rather than pouring good money after bad into banks which clearly had inadequate risk controls, why not just use that cash to start up fresh new banks unencumbered by toxic assets? ...

How transit investments pay for themselves

Posted on June 22, 2009
It turns out that the latter can have an enormous effect on the former: in a number of cities and states, the cost of implementing things like transit-oriented development and growth boundaries can actually be negative , thanks to the resulting reduction in vehicle miles driven...

Regulatory arbitrage anecdote of the day

Posted on June 22, 2009
Under the existing system, banks may choose their own regulators, which in turn are funded by the fees that the banks pay; the O.T.S. had lobbied Countrywide to make the switch. ... And it's one reason why I'm uncomfortable that even after the OTS and the OCC merge to become the National Bank Supervisor, there's still going to be some measure of competition between the NBS and the FDIC to see who gets to regulate whom.

The welcome hike in bankers? salaries

Posted on June 22, 2009
But this I think is a positive development, and doesn't for a minute mean that pay is actually going up: According to insiders and rivals, market salary rates for managing directors have jumped from about $250,000 (?180,000) only a few months ago, to closer to $400,000...

When anonymous sources disappear entirely

Posted on June 21, 2009
By contrast, here's the first paragraph of the WSJ story: Steve Jobs, who has been on medical leave from Apple Inc. since January to treat an undisclosed medical condition, received a liver transplant in Tennessee about two months ago. ... It'll be interesting to see whether the WSJ goes down this road more often in future -- and what readers are meant to make of the distinction between stories which are just asserted, on the one hand, and stories which are sourced to "people familiar with the matter", on the other.

Wine datapoint of the day

Posted on June 20, 2009
I haven't been able to track down the figures -- trade.gov is down all weekend for "scheduled maintenance" -- but this is a huge development, I think, especially since French wines, for my money, have never been better value. ... But in any case, at the margin reduced demand for French wine means cheaper French wine, which is surely a good thing, while increased demand for Argentine wine doesn't seem to have driven up the price of Malbec particularly, and good Malbec is becoming much easier to find, to boot.

Crap marketing campaign of the day, Merrill Lynch edition

Posted on June 19, 2009
This is the new branding campaign for Merrill Lynch, and it’s stunningly crap. First an old-fashioned fountain pen flies in from the right, to be met by a mirroring BofA logo (the Merrill logo seems to have been ditched) coming in from the left...

Thomas Kinkade: Bad, not evil

Posted on June 19, 2009
The people who ran Kinkade stores are upset at him, because he acted a bit like Chrysler towards dealers it ended up closing: Kinkade forced the dealers to buy expensive inventory which simply didn't sell, and refused to accept returns unless they were accompanied by orders for three times as much art as was being returned...

Too big to rescue

Posted on June 19, 2009
Paul Krugman is surely right about this: I think of the pursuit of a world in which everyone is small enough to fail as the pursuit of a golden age that never was. ... When I say that banks' balance sheets should be capped at $300 billion, I'm not for a minute saying that $300 billion is small enough to fail; I'm just saying that such banks are small enough to rescue.

Reverse converts and Vincent Fernando?s straw man

Posted on June 19, 2009
Bond investors, as a rule, are always better off in bond funds than they are picking and choosing their own bond portfolio, not least because the trading costs for bonds, if you take account of the enormous bid-offer spreads shown to retail investors, are a good order of magnitude bigger than they are for stocks...

What?s Citi doing to Pandit?

Posted on June 19, 2009
Breakingviews today has a very odd column saying, essentially, that Vikram Pandit should keep his job despite the fact that since he took over at Citigroup, he's made a large number of serious mistakes and has done almost nothing right. The thing which most struck me about the column, however, was the photo which accompanies it, of Pandit sporting a double chin of Larry Summers proportions.

Friday links take leave of their senses

Posted on June 19, 2009
If you want a job with the City of Bozeman, you'll need to fork over your Facebook and Google passwords . ... Commencement speech lies Banks should pay for their own bailouts Newspapers shooting themselves in the foot, part 972: Now they want to charge people who link to them .

Thursday links stick their head in the sand

Posted on June 18, 2009
Jonah Lehrer on why investors should ignore the markets and the financial press Paul Smalera comprehensively demolishes the idea that micropayments might ever save Time Inc Larry Summers is not in touch with his uncle , Nobel laureate Paul Samuelson...

Unemployment datapoint of the day

Posted on June 18, 2009
Brad DeLong reminds us, in case we've forgotten, how much worse things are now than we feared they would be last December: Does this mean the recovery plan has failed? Or that it was even more necessary than we thought at the time?

How ETF investors fare

Posted on June 18, 2009
John Bogle's mutual fund vs ETF analysis has now appeared , and it seems I was right : Bogle makes no attempt whatsoever to distinguish between buy-and-hold ETF investors, on the one hand, and ETF noise traders, on the other. ... That said, Bogle's analysis is pretty interesting -- especially when he says that the average investor in Vanguard's S&P 500 mutual fund actually outperforms the fund itself by 2...

Dean Starkman loves Gretchen Morgenson

Posted on June 18, 2009
Dean Starkman has a 4,148-word love letter to Gretchen Morgenson in The Nation; it's far from clear that his feelings are reciprocated, despite the fact that he calls her "the most important financial journalist of her generation", and dismisses her critics as trying to start "arguments about wallpaper design in a burning house"...

Rant of the day: Taibbi on Blankfein

Posted on June 18, 2009
It went like this: While we regret that we participated in the market euphoria and failed to raise a responsible voice, we are proud of the way our firm managed the risk it assumed on behalf of our client before and during the financial crisis. ....