Bailout

Another idea for breaking up the banks

Posted on February 08, 2010
Justin Fox tried to adjudicate a debate on Friday. In the blue corner is Philip Augar, a British investment banker who wants to go back to a very British form of investment banking (think all those houses with Hogwarts-style names like Rothschilds and Schroders and Kleinworts and Warburgs), where advisory shops make their money from fee income, and leave the trading to the Americans big broker-dealers.

Citi reinvents end-of-the-world insurance

Posted on February 08, 2010
In hindsight, one of the silliest and most dangerous excesses of the Great Moderation was the large number of companies -- foremost among them AIG, although there were lots of monoline insurers in the same trade -- basically selling insurance on the world coming to an end...

Can Europe print money to get out of its fiscal hole?

Posted on February 08, 2010
Warren Mosler has an interesting and provocative remedy for Europe's current fiscal woes: the European Central Bank should simply print ?1 trillion, and hand it out, on a pro-rated basis, to all the Eurozone states. This is a per-capita payment: it would be based on population, not on GDP, with the highest-population countries getting the most money.

Giacometti and the primacy of the fungible

Posted on February 07, 2010
How did I miss the $104 million Giacometti? Marion has a good round-up of the reactions, to which I'd just add that this is proof of the primacy of the fungible. The most valuable works of art are increasingly not unique, but rather part of an edition: the Giacometti is just one of ten, including four artist's proofs...

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Why the government should have nationalized AIG

Posted on February 07, 2010
This weekend's big NYT story on Goldman Sachs and AIG does not, I think, say anything much we didn't already know. But it does suggest, I think, that the US government made a big mistake in bailing out AIG rather than nationalizing it outright:

Measuring total risk

Posted on February 07, 2010
Peter Conti-Brown has a new paper proposing the creation of what he calls a Fat Tail Risk Metric, or FTRM. The paper itself is flawed, and the details of how it's constructed would need to be reworked from scratch. But conceptually, the FTRM I think is a good idea...

Eurozone worries and market volatility

Posted on February 06, 2010
I'm in England right now, spending more time going on walks and eating oysters than trying to keep a close eye on financial markets. But the one thing that has been screaming out at me, from the headlines on BBC radio to the front page of the Independent, is the idea that the fall in global markets is a direct consequence of a deepening crisis in the eurozone, and fears that default risk might be spreading from Greece to Portugal and elsewhere.

Immelt and Paulson meet again

Posted on February 06, 2010
This event -- Hank Paulson being interviewed by Jeffrey Immelt at the 92nd Street Y on February 18 -- might just have got a lot more interesting:

The unburst property bubble

Posted on February 05, 2010
Brett Arends is in London, and, like most visitors to London, is shocked at the prices for everything from taxis to houses.

Blankfein?s seven-figure bonus

Posted on February 05, 2010
I was expecting Lloyd Blankfein's bonus to be small this year, but I wasn't expecting it to be as small as $9 million: a mere 7 figures.

Moe Tkacik in The Baffler

Posted on February 05, 2010
If you're snowed in this weekend, I can highly recommend Moe Tkacik's monster essay reviewing most of the foremost recent crisis books. It's 8,000 words long, but it's worth it: Moe put a lot of effort and feeling into this piece, and it shows. For instance, here she is on Gillian Tett, and her glorification of the people who invented the synthetic collateralized debt obligation:

Taleb vs Treasuries

Posted on February 04, 2010
In The Black Swan, Nassim Taleb explains his barbell investment strategy: Instead of putting your money in "medium risk" investments (how do you know it is medium risk? by listening to tenure-seeking "experts"?), you need to put a portion, say 85 to 90 percent, in extremely safe investments, like Treasury bills -- as safe a class of investments as you can manage to find on this planet...

The top IMF job comes up again

Posted on February 04, 2010
Back when Dominique Strauss-Kahn first put himself in the running for the managing director job of the IMF, I said this: One point in his favor: he's utterly failed to become president of France, so he's not going to pull a Horst Köhler and quit to become president of his own country...

How financial innovation causes bubbles

Posted on February 04, 2010
Stephen Gandel has a good, thought-provoking interview with Roy Smith, a former Goldman banker whose book is available in the UK. His way of looking at both bubbles and busts as being driven by liquidity I think has a lot to be said for it:

Shorting reserves

Posted on February 03, 2010
Michael Pettis does a good job of systematically dismantling this idiotic line from Tom Friedman:

When Goldman Sachs hates marking to market

Posted on February 03, 2010
The most ridiculous sentence I've read today comes from Goldman Sachs, protesting against proposals that money-market funds should be marked to market. But first let's remember what Goldman CEO Lloyd Blankfein has to say about marking to market:

The FT?s ads on paywalls

Posted on February 03, 2010
Bento, from Ultimi Barbarorum, doesn't have an FT subscription, and as such is prone to running into its paywall. Recently, however, he's noticed something odd: when he visits the FT after having reached his quota limit, the page loads fully -- including all of the ads on it -- and then the paywall popup appears, preventing him from reading it...

The Volcker rule?s loopholes

Posted on February 03, 2010
Paul Volcker's long NYT op-ed last weekend, and his testimony to the Senate banking committee this week, did very little to clear up a lot of the uncertainty over what exactly the Volcker rule comprises. That was probably deliberate, given the degree to which Chris Dodd is skeptical that any such rule can be implemented at all...

Counterparties

Posted on February 02, 2010
Investment banking turns gay -- Hedgeco

How the Teamsters successfully played the CDS market

Posted on February 02, 2010
The fight between capital and labor has been a bit lopsided of late, so I'm quite happy to see that the Teamsters seem to have scored a real win from their latest PR campaign against Goldman Sachs.

Andrew Cuomo protects financial consumers

Posted on February 02, 2010
It will be the job of the Consumer Financial Protection Agency -- assuming it ever comes into existence -- to crack down on banks sneaking inadequately-disclosed fees onto their customers. in the mean time, we have to make do with the Fed, and, um, the New York attorney general:

Turning stock bonuses into cash

Posted on February 02, 2010
It probably comes as no surprise to learn that bankers have discovered a loophole allowing them to turn their restricted stock into cash. The trick is to notice that restricted stock can still be vested stock -- which means that although it can't be sold, it is owned by the employee in question and can therefore be pledged as collateral against some kind of equity derivative.

Counterparties

Posted on February 01, 2010
Real estate bubbles are more dangerous than stock-market bubbles. Thankfully, they're also easier to spot -- Dsquared

Can Goldman dodge the Volcker rule?

Posted on February 01, 2010
The Volcker rule is an attempt to ensure that banks which are too big or interconnected to fail -- institutions which will certainly get bailed out if they blow up -- don't take inordinate risks on their own account. So this worries me:

Davos hubris

Posted on February 01, 2010
On Friday, Lance Knobel rose to the defense of the World Economic Forum. On Saturday, I was cornered by a particularly aggressive Young Global Leader, who had taken the oath, and whose plans for making the world a better place I developed a severe aversion to quite early, at exactly the time that he used the word "platform" as a verb...

Counterparties

Posted on January 31, 2010
"Books are, within reasonable limits, demand-inelastic" -- TBM

What?s wrong with economic reporting?

Posted on January 30, 2010
Justin Wolfers wonders about what he sees as an economics-reporting arbitrage: given this chart, he says, why aren't editors and reporters doing a better job of moving resources into economics reporting?

World hunger and the locavores

Posted on January 30, 2010
Every so often at Davos you have a short, startling conversation which completely changes the way you think about a subject -- and I just had one of those standing next to Dan Barber, the chef of Blue Hill Farm. He's a very smart, very funny guy, who's passionate about food on every level from preparing the ingredients of the dishes in his restaurants to the logistics of feeding the planet.

The regulatory consensus

Posted on January 30, 2010
The big meeting this morning between global bankers and regulators is exactly the meeting I was hoping would happen. A large group of bold-face names such as Larry Summers, Brian Moynihan, Alistair Darling, and Mario Draghi,  meeting behind closed doors, reportedly came to the obvious yet necessary conclusion that, in the words of Darling, "we are agreed that whatever we do, it needs to be universal...

Don?t exclude Treasuries from the bank tax

Posted on January 29, 2010
I'm not a fan of excluding Treasuries from the proposed new bank tax. For one thing, Treasuries are assets, not liabilities: they're technically not covered by the tax in the first place. What's really being talked about here is the repo market, which has grown far too big, and which has made it far too easy for banks to borrow money at ultra-short maturities.

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