tag:blogger.com,1999:blog-37354540684721371242024-03-13T22:32:05.992-04:00I've Said Enough Already“And the end of all our searching shall be to return to the place where we started and know it for the first time.” -T.S. EliotAmicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.comBlogger417125tag:blogger.com,1999:blog-3735454068472137124.post-79810207229967891702011-03-17T07:06:00.001-04:002011-03-17T07:07:29.946-04:00Fixing LIBORThey are <a href="http://finance.yahoo.com/news/Five-banks-in-Libor-probe-rb-2515698512.html;_ylt=AoQ5SCzSslMHpZumiC8pItG7YWsA;_ylu=X3oDMTE2MWk0MDFtBHBvcwMxMgRzZWMDdG9wU3RvcmllcwRzbGsDZml2ZWJhbmtzaW5s?x=0&sec=topStories&pos=9&asset=&ccode=">probing</a> whether LIBOR is fixed.<br /><br />*boggle*<br /><br />That's kinda like asking whether the London gold fixing rate is a fixed rate...Amicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.com0tag:blogger.com,1999:blog-3735454068472137124.post-84338895900881296702011-02-23T01:30:00.001-05:002011-02-23T01:32:07.896-05:00Keeping scoreEach economist has a "Q" and The Economist tried to sort it [pic link]:<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://www.economist.com/node/18118985?story_id=18118985"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 290px; height: 245px;" src="http://3.bp.blogspot.com/-DStlrxGvEIU/TWSpvXIHKHI/AAAAAAAACHc/7CxSb8rTyuw/s400/economist.gif" border="0" alt="" id="BLOGGER_PHOTO_ID_5576768869718501490" /></a>Amicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.com0tag:blogger.com,1999:blog-3735454068472137124.post-60513636114287125542011-02-22T11:56:00.004-05:002011-02-22T11:59:31.540-05:00The New Math of Modern Banking<div>46% of loans are non-performing. This is not "problematic", because ??</div><br />I guess because it is real-estate loans, or real-estate only. Or, it's the new math of banking.<br /><br />Anyway, the bottom line: 100 billion euros is the size of the "workout" <a href="http://www.nytimes.com/2011/02/22/business/global/22cajas.html?ref=business">to be had in Spain</a>, give or take X billion.<br /><br />Have a nice day!Amicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.com0tag:blogger.com,1999:blog-3735454068472137124.post-50779035187913660602011-02-17T12:48:00.002-05:002011-02-17T12:50:42.599-05:00Oh, Gentle BenYou get "paid" the big bucks, you should take the big risks, political, economic, and otherwise, no?<br /><br /><blockquote>A study of the programs suggests that the liquidity facilities generated $20 billion in interest and fee income between August 2007 and December 2009, or $13 billion<br />-<a href="http://www.newyorkfed.org/research/current_issues/ci17-1.html">NY Fed</a></blockquote><br /><br />See, to me, that means the Fed could and and should have taken credit risks, perhaps up to $13 billion worth, or even legal risks, perhaps up to $13 billion worth...Amicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.com0tag:blogger.com,1999:blog-3735454068472137124.post-21218670513781553392010-11-17T08:02:00.005-05:002010-11-17T08:44:23.119-05:00GM bailout looking okay<span style="font-weight: bold;">PENNIES ON THE DOLLAR, COMPARED TO THE ALTERNATIVE</span><br /><br />My back-of-the envelop calculation indicates that the taxpayers won't be made whole with the GM "bailout".<br /><br />After the stock offering, I guesstimate about $35 billion left for treasury to collect from its common stock investment, but I could be wrong, because I don't have the prospectus. It's unlikely that amount of principal will be recouped in full, except over the extremely long term.<br /><br />Taxpayers will be collecting between $200 and $300 million, potentially, in dividends, each year. That's a rate better than holding Treasury's own securities, no doubt.<br /><br />In a favorable environment with an astute Treasury, the Government might limit its loss to $20 billion. In a cost-benefit, that has to be weighed against the lost tax revenue and benefits paid, including pension guarantees, due to massive unemployment that would have resulted had the company, its suppliers, and all its dealerships failed. From that perspective, it looks like a very wise move, wise "stimulus" spending.<br /><br />From Barofsky, the special inspector general who is watching the numbers for us:<br /><br /><blockquote>Regarding your question [Grassley] of how much Treasury needs to receive from the sale of GM stock in order to avoid a taxpayer loss on its investment, from December 31, 2008 through June 3, 2009 – bother before and during bankruptcy, Treasury provided $49.5 billion in loans to support the continued viability of GM. Treasury provided GM these loans under Treasury’s Auto Industry Financing Program. During bankruptcy, GM split into two independent companies: Motors Liquidation Company (“MLC”) and General Motors Company (“New GM”). MLC retained $1 billion of the $49.5 billion debt obligation from Treasury to cover wind-down costs, and transferred substantially all of its assets and its remaining $48.5 billion in Treasury loans to New GM. Also during bankruptcy, New GM signed an agreement with Treasury that converted the remaining $48.5 billion in debt into a $6.7 billion debt note, $2.1 billion in preferred stock, and a 60.8% stake in New GM’s common stock. The 60.8% stake amounts to 304,131,356 common shares.<br /><br />Subsequent to emerging from bankruptcy, New GM retired the $6.7 billion in debt, leaving Treasury with $2.1 billion of referred stock and 60.8% of the common stock, which has a cost basis of $39.7 billion ($48.5 billion less $6.7 billion less $2.1 billion). In order for Treasury to recoup its common stock investment in the New GM and the $1 billion retained by MLC, New GM would need to receive an average of $133.78 per share, before giving effect to any stock splits that may occur. This figure does not include the underwriting, legal and other costs that Treasury will incur in connection with the IPO …</blockquote>Amicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.com0tag:blogger.com,1999:blog-3735454068472137124.post-52414896175361059462010-11-16T19:19:00.005-05:002010-11-18T23:54:08.099-05:00GM ups the size of IPO by 30%Not that you might have predicted it from the last post, but GM has <a href="http://online.wsj.com/article/SB10001424052748704312504575619004098993666.html">upped the size</a> of its post-bailout offering by 30%, indicating that the talky-talk is good.<br /><br /><span style="font-weight: bold;">Update</span>:<br /><br />The size of the green shoe is <s><span style="font-style: italic;">enormous</span>!</s> <span style="font-weight: bold;">Update</span>: Not "enormous", just sizeable (I completely misread the note that there was <span style="font-style: italic;">another </span>550 million, when it is just 72).:<br /><br /><blockquote>G.M. will now offer 478 million shares in the offering, which is expected to price between $32 to $33 a share, these people said. The company's underwriters also have the option - likely to be used - to expand the size of the offering to about 550 million shares. G.M. also expects to sell up to $4.4 billion worth of preferred shares.<br /><br />-<a href="http://finance.yahoo.com/news/GM-Expands-IPO-by-31-Further-nytimes-1092114413.html;_ylt=AvQCie2ZX565jXKTIH7wM6.7YWsA;_ylu=X3oDMTE1cHYyZ3NnBHBvcwM5BHNlYwN0b3BTdG9yaWVzBHNsawNnbWV4cGFuZHNpcG8-?x=0&sec=topStories&pos=6&asset=&ccode=">NYT</a><br /></blockquote>Amicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.com0tag:blogger.com,1999:blog-3735454068472137124.post-51139832276400112192010-11-07T09:18:00.001-05:002010-11-07T09:20:04.657-05:00The biggest auto rally in history?Will the new gas taxes kill the potential for the biggest rally in history?:<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://static.seekingalpha.com/uploads/2010/11/4/saupload_clipboard01_auto.png"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 100%;" src="http://static.seekingalpha.com/uploads/2010/11/4/saupload_clipboard01_auto.png" alt="" border="0" /></a><br /><span id="fullpost"><hr /></span>Amicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.com0tag:blogger.com,1999:blog-3735454068472137124.post-70700711692299300262010-02-03T07:46:00.003-05:002010-11-16T19:22:08.082-05:00The Cost of the GM Realignment<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh2HzRRM9rUpOfJjtATvOw25Qe10k2NN_R4KzhSXkKf0oist9VFseHkrLrkGe_JmaEmLKMv78WV7kKoqVBgW3vOLWfM-7kbbwAJcgUQJEqUN6WYfPmK05dLv6k7opVL06LKHsyw6in8xI0S/s1600-h/supremecourt-425.jpg"><img style="margin: 0px auto 10px; display: block; text-align: center; cursor: pointer; width: 400px; height: 247px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh2HzRRM9rUpOfJjtATvOw25Qe10k2NN_R4KzhSXkKf0oist9VFseHkrLrkGe_JmaEmLKMv78WV7kKoqVBgW3vOLWfM-7kbbwAJcgUQJEqUN6WYfPmK05dLv6k7opVL06LKHsyw6in8xI0S/s400/supremecourt-425.jpg" alt="" id="BLOGGER_PHOTO_ID_5433997960171271202" border="0" /></a><br /><br />All those dealerships that felt bitter because GM was forced, under government supervision, to cut them lose?<br /><br />We sold out the nation's politics to them.<br /><br />At least, so it would seem. Who knows the "true" judicial history of this radical break from a common wisdom that spans generations, this "Citizens United".Amicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.com0tag:blogger.com,1999:blog-3735454068472137124.post-60921893375482519412010-02-02T15:09:00.005-05:002010-02-03T08:12:52.856-05:00Invincible Wall Street - It Was an Act of GodAfter the traditional brokers' refrain, 'don't blame us, we're just the brokers - our clients did the risk taking', it appears that Goldman CEO Lloyd Blankfein was smacked down for <a href="http://www.reuters.com/article/idUS325951487520100114">suggesting</a> that the problems were akin to an act of god.<br /><blockquote><br /><span id="articleText">“when Lloyd C. Blankfein, chief executive of the storied Wall Street firm Goldman Sachs, likened the financial crisis to the fluke of four hurricanes hitting the East Coast in a single year, Angelides shot back that the crisis was not caused by ‘acts of God.’ ‘These were acts of men and women,’ Angelides said. ‘These were controllable.’ ”</span></blockquote>Blankfein's invincible compensation for the year is yet to be announced.<br /><br />Separately, Hank Paulson is checking in (cashing in?) with his story, <span style="font-style: italic;">On the Brink</span>:<br /><br /><blockquote>"Banks were going down like flies," Mr Paulson <a href="http://www.ft.com/cms/s/0/82fbb492-0ed2-11df-bd79-00144feabdc0.html">told the FT</a>. </blockquote>Amicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.com0tag:blogger.com,1999:blog-3735454068472137124.post-82452049308901539002009-06-02T10:25:00.002-04:002009-06-02T10:27:57.989-04:00The torch passes ...It's true, in a way:<br /><br /><span style="font-weight: bold;"><blockquote>The American Century ends today with the <a href="http://www.washingtonpost.com/wp-dyn/content/article/2009/06/01/AR2009060100697.html?hpid=topnews">death</a> of General Motors as we knew it, the free-market engine that powered an economy and a culture to global preeminence, selling physical and social mobility to millions who had previously lived in small insular worlds.<br /><br />-<a href="http://ajliebling.blogspot.com/2009/06/uncle-sam-in-rumble-seat.html">Robert Stein</a></blockquote><a href="http://ajliebling.blogspot.com/2009/06/uncle-sam-in-rumble-seat.html"></a></span><br /><br />Our self-confidence today is as it was at the peak. That strikes me as not well calibrated.<br /><br />Is this just the end of the buggy whip? It doesn't seem so. All the new "whips" are made elsewhere and our accounts are not in good shape ...Amicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.com1tag:blogger.com,1999:blog-3735454068472137124.post-43292067334669273632009-04-05T04:26:00.002-04:002009-04-05T04:28:49.456-04:00The Exceptional Case of SpainFast growth and "non-derivative banks" didn't keep them from poor investments in property.<br /><br /><a href="http://ftalphaville.ft.com/blog/2009/04/03/54459/unemployment-spanish-edition/#comments">The ugliness is getting worse</a>.Amicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.com0tag:blogger.com,1999:blog-3735454068472137124.post-30736035427518641382009-04-04T23:24:00.002-04:002009-04-04T23:26:20.493-04:00This Week In Markets HistoryIt is announced, not from Buckingham Palace, but from Scotland Yard:<br /><br /><blockquote>Scotland Yard lost £30m of taxpayers' money by reinvesting in a doomed Icelandic bank just weeks after withdrawing the cash on the advice of its financial expert, the Observer can reveal.<br /><br />The Metropolitan <a href="http://www.guardian.co.uk/politics/police">Police</a> Authority withdrew all investments from Landsbanki in April last year following instructions from its treasurer, Ken Hunt. But just weeks later, it reinvested with the bank without informing Hunt who remained in the dark until the bank was nationalised in October.<br /><br />- <a href="http://www.guardian.co.uk/politics/2009/apr/05/scotland-yard-iceland-banks-losses">Guardian</a><br /></blockquote>Amicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.com0tag:blogger.com,1999:blog-3735454068472137124.post-87784374288416066972009-04-02T10:34:00.003-04:002009-04-02T12:37:02.263-04:00Eternal RebirthThis could fall into the category of Invincible Wall Street, but it has a tinge of fear-greed in it that is wholly different.<br /><br />Apparently, the CEO whose board approved dividends well into the crisis (Merrill board approved payments up to the very last...), has the vision/visibility to <a href="http://uk.reuters.com/article/marketsNewsUS/idUKN0254499120090402">say</a> that recovery may take hold in 2009.<br /><br />I'd put 3:1 odds that BOA will have a big-bath 4Q this year, <span style="font-style: italic;">at a minimum</span>; but that's just me.Amicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.com0tag:blogger.com,1999:blog-3735454068472137124.post-28677000257977342002009-04-01T18:28:00.005-04:002009-04-02T12:38:07.378-04:00Hiding the Copula and Other TalesWell, very late, I've read about <a href="http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all">the formula at the center of the storm</a>.<br /><br />It's supposed to have hidden risk. I'm looking at Chart 5 - does this hide risk? It doesn't look like it (although I'm not sure why it is not symmetric about zero or why the risk appears linear with changes in "correlation", off hand). I mean, the author is clearly showing a sensitivity to correlation.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://4.bp.blogspot.com/_yEo2CYoHMmA/SdPrXQ8ZLoI/AAAAAAAABzc/chbi-54_xdE/s1600-h/Copula.jpg"><img style="margin: 0px auto 10px; display: block; text-align: center; cursor: pointer; width: 100%;" src="http://4.bp.blogspot.com/_yEo2CYoHMmA/SdPrXQ8ZLoI/AAAAAAAABzc/chbi-54_xdE/s320/Copula.jpg" alt="" id="BLOGGER_PHOTO_ID_5319854369772482178" border="0" /></a><br /><br />The insight is a pretty straight-forward application of the properties of a Markov process. From what I can tell, the mathematics of modeling survival rates (hazard rates) did two things. It generalized the mathematical problem AND it allowed people to use different estimates/estimators for the model inputs. The latter may have been more critically important, because it's not at all clear how much information is in credit spreads to begin with, right?<br /><br />Anyway, Paul Wilmott <a href="http://www.wilmott.com/blogs/paul/index.cfm/2009/2/24/Copulas-and-Cults">thinks</a> Gaussian Copula is not robust, but Black-Scholes is. Off hand, it's not easy to see what they are after with that. Both have Gaussian assumptions. You might argue that covariances are more sensitive to leptokurtosis than, say, standard deviation estimates, or something; but, given the Wilmott-Taleb emphasis on outliers, you'd think they would welcome that (if it were true).Amicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.com0tag:blogger.com,1999:blog-3735454068472137124.post-16909533237628628412009-03-30T19:12:00.001-04:002009-03-30T19:14:06.200-04:00Asset Allocation, RevisitedSoon enough, we will find out who advised on <a href="http://www.boston.com/news/nation/washington/articles/2009/03/30/pension_insurer_shifted_to_stocks/?page=full">this</a>:<br /><br /><blockquote>Under Millard's strategy, the pension agency was directed to invest 55 percent of its funds in stocks and real estate. That included 20 percent in US stocks, 19 percent in foreign stocks, 6 percent in what the agency's records term "emerging market" stocks, 5 percent in private real estate and 5 percent in private equity firms.</blockquote><br /><br />That would be the Pension Benefit Guarantee Association, who shifted their allocation <span style="font-weight: bold; font-style: italic; color: rgb(255, 102, 0);">in February, 2008</span>.Amicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.com0tag:blogger.com,1999:blog-3735454068472137124.post-80218120703960687322009-03-27T16:21:00.004-04:002009-03-30T09:46:59.231-04:00Invincible Wall Street - Another Dash-for-CashIt's not just Wall Street, but if you still had any illusions that Greenspan's enlightened self-interest stuff rules the day, read <a href="http://www.onwallstreet.com/news/michigan-banker-fired-schwab-hartman-2661426-1.html">this</a>.<br /><br />It's not just Merrill Lynch executives who made an alleged, last-minute, dash-for-cash. The storyboard:<br /><br /><div style="border: 1px dashed rgb(184, 134, 11); padding: 2px; background: rgb(250, 235, 215) none repeat scroll 0% 0%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; width: 90%; position: relative; left: 5%;">Chief credit officer of mid-size bank advises board not to pay a bonus/salary demand of then CEO, a request made just before TARP monies flow in and the first quarterly losses come down.<br /><br />In one of last acts, CEO summons said credit officer, fires him, while having people "sweep" his blackberry and computer.<br /><br />Today, we know about this <span style="font-style: italic; font-weight: bold;">only </span>because there is a lawsuit ...<br /></div><br /><br />This is how the lousy ethical situation at the top perpetuates itself. Only those who 'go along' continue.<br /><br />The evidence of it is everywhere, if you just keep your eyes open.Amicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.com0tag:blogger.com,1999:blog-3735454068472137124.post-91036803700792246612009-03-27T12:56:00.004-04:002009-03-27T15:08:07.068-04:00Three Helicopters<span style="font-weight: bold;">FASTEN YOUR SEAT BELTS, IT'S GOING TO BE A BUMPY RIDE</span><br /><br /><a href="http://www.nytimes.com/2009/03/27/opinion/27krugman.html?_r=2">Reference</a>.<br /><br /><span style="font-weight: bold;">There is helicopter Ben (Benanke).</span> He drops money and doesn't want to talk about on whom the manna is falling (whether it is Bear Stearns today, or not, or Lehman - that's ... a ground job).<br /><br /><span style="font-weight: bold;"><div style="border-top: medium ridge orange; border-bottom: medium ridge orange; margin: 0px 4px; padding-top: 2px; padding-bottom: 2px; float: right; width: 245px; text-align: center; line-height: 1.1em; font-style: italic;"><span style="font-weight: normal;">Alan Greenspan </span><a style="font-weight: normal;" href="http://www.ft.com/cms/s/0/9c158a92-1a3c-11de-9f91-0000779fd2ac.html">says</a><span style="font-weight: normal;"> that there is $850+ billion more to go. Depending on how you think that is (or should be) spread around, any one of the above is "correct". Fasten your seatbelts, it will be, literally, the ride of your lifetime, most likely!</span></div>There is helicopter Larry (Summers). </span> He believes that, if you fly too high, you get burned, so he keeps his altitude.<br /><br /><span style="font-weight: bold;">There is helicopter Paul (Krugman).</span> He sees the chessboard from a higher altitude and wants to move mountains (or dismantle the Frankenstein that he sees).<br /><br />Alan Greenspan <a href="http://www.ft.com/cms/s/0/9c158a92-1a3c-11de-9f91-0000779fd2ac.html">says</a> that there is $850+ billion more to go. Depending on how you think that is (or should be) spread around, any one of the above is "correct". Fasten your seatbelts, it will be, literally, the ride of your lifetime, most likely, even from March, 2009, onwards!<br /><br />For the record, if there is a bias in thought to be demonstrated, I doubt it is a belief akin to a 'market mystique'. If it's anything tangible, it may be a cultural thing or the proximity of having been a regulator, the protective and curative attitude of having had banks as part of your liege.<br /><br />On the other hand, there may be no bias, because some people do have superior, 'inside' information from bank examiner's reports ...Amicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.com0tag:blogger.com,1999:blog-3735454068472137124.post-40108237829956272892009-03-27T01:47:00.008-04:002009-03-27T13:14:27.216-04:00I'm More Systemically Important Than You!A dialog on the <a href="http://www.treas.gov/press/releases/tg72.htm">new proposals</a>.<br /><br />I think <span style="color: rgb(204, 0, 0);">they ought to have waited for the details</span>, but ... they didn't. These are <span style="font-weight: bold;">really knotty problems</span>, and I don't think this proposal is going to carry its burden.<br /><br /><span style="font-size:130%;"><span style="font-weight: bold;">1. How do we prevent another AIG?</span></span><br /><br />Well, it <span style="font-style: italic;">looks like </span>the kinds of contracts they sold will be set-up so that it would have been obvious that they were so exposed.<br /><br />Whether AIG FP would have been declared a 'systemically important' firm or not is open to debate. Afterall, the HQ was in <span style="font-style: italic; font-weight: bold;">London</span>, yes?<br /><br />Of course, there is the matter of AIG's 'securities lending' losses. Wassup with that? How much incremental capital do you need for insanely stupid? In other words, let's not pretend that hanging out a sign "AIG & Co, Inc., AAA Systemically Important Firm with Punative Capital Requirement(s)" solves the problem. It just designates the risks.<br /><br /><span style="font-size:130%;"><span style="font-weight: bold;">2. How do we prevent another LTCM?</span></span><br /><br />It looks like hedge funds of a certain size will need to register and report their positions. If they don't, ... well, there are no new civil or criminal penalties proposed.<br /><br />Now, this proposal doesn't specifically say, that LTCM would have been "out of bounds", as it was then constituted, <span style="font-weight: bold;">IF </span>it had remembered to register. Maybe they would have cleared through a Canadian firm, to avoid the one-world, regulatory hassles...<br /><br />Structured products, like CDOs or linked notes - those aren't 'OTC traded derivatives', so let's not pretend that that <span style="font-style: italic;">embedded </span>risk is captured by new clearing systems.<br /><br /><span style="font-size:130%;"><span style="font-weight: bold;">3. How do we prevent more Lehman and Bear Stearns weekends?</span></span><br /><br />The Fed - Ben Bernanke? - wants out of it. No more weekends at Ben's. That's how I read the proposals, at least.<br /><br />Where does the discount window (liquidity pinch) end and the Treasury/FDIC start? Who knows, exactly, except at the (overnight?) point of insolvency....<br /><br />Somehow, Lehman might have been operated in <span style="font-style: italic;">temporary </span>"conservatorship". Do you see that happening, for a broker-dealer operation?<br /><br />Otherwise, the options are those already just on the table: an equity stake from the government, but at the discretion of two Presidential appointees with no limits proposed (a bailout without strings attached?) .<br /><br />No interest in equity? Well, they propose they could buy debt or guarantee liabilities. The first seems inconsistent with the spirit of the idea of 'eliminating too big to fail' and the second, with the notion that the firm is 'temporarily insolvent' (but not impaired, I guess).<br /><br /><span style="font-size:130%;"><span style="font-weight: bold;">4. Who does all the new watching.</span></span><br /><br />Not the safety-and-soundness Fed, who are the natural group to do it, one would guess.Amicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.com0tag:blogger.com,1999:blog-3735454068472137124.post-65987256885115292402009-03-26T09:23:00.006-04:002009-03-26T23:42:33.556-04:00Value of the Geithner PutSomeone not on the AIG multi-million dollar payroll <a href="http://rortybomb.wordpress.com/2009/03/25/modeling-an-fdic-robbery/#comments">puts together</a> a model and finds that, at 7:1, the Geithner put may be worth about 11% to the average investor. My back-of-the-envelope numbers (see below) suggested about the same.<br /><br />This is hardly giving away the store.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://rortybomb.files.wordpress.com/2009/03/graph31.jpg"><img style="margin: 0px auto 10px; display: block; text-align: center; cursor: pointer; width: 100%;" src="http://rortybomb.files.wordpress.com/2009/03/graph31.jpg" alt="" border="0" /></a><br /><br />[Side note: They misinterpreted the max stated leverage of 6:1, I think, as an "odds" formulation, to come up with only 1/7 of the total capital required.... If you have 5:1 leverage, you have an organization with 20% equity, under common parlance.]<br /><br />(h/t Salmon)Amicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.com0tag:blogger.com,1999:blog-3735454068472137124.post-88222381596230559702009-03-26T09:05:00.001-04:002009-03-26T09:07:58.681-04:00Invincible Wall Street<span style="font-weight: bold;">NOT FIT FOR YOUR EARS</span><br /><br />Truthiness is not a bell to ring. <br /><br />Even after the 90s, it's still going on. The Spitzer-Wall Street settlement monies will stop being paid, coincidentally, this year, I believe.<br /><br />Anyway, Mike Mayo <a href="http://online.wsj.com/article/SB123802274550241963.html">is out</a>, grumbling. Richard Bernstein <a href="http://www.cjr.org/the_audit/toughtalking_bofa_analyst_yest.php">is out</a>, maybe grumbling.<br /><br />Pushed or pulled?Amicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.com0tag:blogger.com,1999:blog-3735454068472137124.post-2605181445619268282009-03-26T08:46:00.006-04:002009-03-27T15:12:52.606-04:00Can we talk about it nowI'm never one for fantasizing about a "new era" on Wall Street or something the FT called a new era of 'accountable capitalism' (good grief, no); but maybe, just maybe, the level of disclosure is up, when you see something as plain and starkly written as <a href="http://www.portfolio.com/views/columns/wall-street/2009/02/11/Analysis-of-Private-Equity-Business">this</a>:<br /><br /><div style="border: 1px dashed rgb(184, 134, 11); padding: 2px; background: rgb(250, 235, 215) none repeat scroll 0% 0%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; width: 90%; position: relative; left: 5%;">Add to that the reality that private equity firms generally don’t make their money by choosing good investments. They make it on an amazing Technicolor array of fees: management fees, deal completion fees, consulting fees, performance fees, special events fees, fees of every kind and stripe. Chalk it up to yet another racket of the bubble years.</div><br /><br />I have to say that there are probably a few good private equity firms, a few who know certain industries and can really execute better than talent served on plates from over-paid search-firms.<br /><br />The expansion of the field, however, naturally could have been expected to lower standards ...<br /><br /><span style="font-weight: bold;">INVINCIBLE WALL STREET</span><br /><br />Anyway, the most important is that Wall Street still rules the world:<br /><br />"Little noticed<span style="font-style: italic;"> in the recent bail-out package</span> is the favorable tax treatment private equity firms will receive when repurchasing their distressed debt." [see comment section]Amicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.com0tag:blogger.com,1999:blog-3735454068472137124.post-74127246074864737892009-03-25T21:38:00.004-04:002009-03-25T22:27:19.389-04:00Invincible Wall StreetMore in our series, "Invincible Wall Street" (for the record).<br /><br />Let us enjoy our cake, <a href="http://dealbook.blogs.nytimes.com/2009/03/23/jpmorgan-to-proceed-with-new-jets-and-hangar/?hp">we're the good guys</a>?:<br /><br /><div style="border: 1px dashed rgb(184, 134, 11); padding: 2px; background: rgb(250, 235, 215) none repeat scroll 0% 0%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; width: 90%; position: relative; left: 5%;">JPMorgan Chase is considering spending $138 million to buy new corporate jets and a hangar to house them, ABC News reported Monday. ...The banking giant, one of the few firms to hold steady so far in the financial turmoil, plans to spend nearly $120 million for two Gulfstream 650 planes and an $18 million renovation for a hangar at Westchester Airport outside New York City, according to ABC News.<br /><br />“When I hear the constant vilification of corporate America, I personally don’t understand it,” Mr. Dimon said recently. “I would ask a lot of our folks in government to stop doing it because I think it’s hurting our country.”</div><br />Why do overpaid search firms, or whatever, always turn up <a href="http://www.huffingtonpost.com/robert-scheer/obamas-toxic-advisers_b_178812.html">the same cast of characters</a>?:<br /><br /><div style="border: 1px dashed rgb(184, 134, 11); padding: 2px; background: rgb(250, 235, 215) none repeat scroll 0% 0%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; width: 90%; position: relative; left: 5%;">Bernie Sanders, the senator from Vermont who is independent in spirit as well as party label, has placed a hold on President Obama's nomination of Gary Gensler to head the Commodity Futures Trading Commission.</div><br /><br />...and <a href="http://yglesias.thinkprogress.org/archives/2009/03/fred_malek_on_cnbc.php">another Phoenix</a>:<br /><br /><div style="border: 1px dashed #B8860B; background: #FAEBD7; padding: 2px 2px 2px 2px; width: 90%; position: relative; left: 5%;">One of the enduring mysteries of American life is how it is, exactly, that so many people guilty of serious breaches of the public trust manage to maintain respectability in virtue of having committed this breaches while working for Republican presidents. Here’s Fred Malek guest-hosting on CNBC and loading Rep Paul Ryan’s “give more money to rich people” alternative budget. Who’s Fred Malek? Read this Colbert King article for the full details. But to make a long story short, though Malek is most infamous for the fact that on Richard Nixon’s behest he compiled a list of Jews working at the Bureau of Justice Statistics</div>Amicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.com0tag:blogger.com,1999:blog-3735454068472137124.post-20405846551502021402009-03-25T21:31:00.005-04:002009-03-26T08:55:16.195-04:00Humor in Uniform<p><a href="http://curiouscapitalist.blogs.time.com/2009/03/23/paul-krugman-is-a-very-smart-economist-not-an-all-knowing-being/"></a></p><blockquote><a href="http://curiouscapitalist.blogs.time.com/2009/03/23/paul-krugman-is-a-very-smart-economist-not-an-all-knowing-being/"></a>Paul Krugman: Smart economist, or all-knowing being?<br />- <a href="http://curiouscapitalist.blogs.time.com/2009/03/23/paul-krugman-is-a-very-smart-economist-not-an-all-knowing-being/">Justin Fox</a></blockquote><p></p><br />Although I've met Larry Summers a couple of times, in just public settings, I've never met Paul.<br /><br />From a distance, he seems like a guy you'd want to be your uncle or dad, as much as a 'smart economist' or even 'omniscient being'.Amicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.com0tag:blogger.com,1999:blog-3735454068472137124.post-89848978234448337962009-03-24T03:25:00.010-04:002009-03-25T20:42:45.940-04:00Geithner's First Plan<span style="font-weight: bold;">NOTHING LIKE PASSING OUT PUTS TO RESTORE CONFIDENCE</span><br /><br />Well, the plan <a href="http://financialstability.gov/">is out</a>, and it looks sort-of like what I proposed (see just below).<br /><br />Wall street cheered it. Someone once said (me?) that the <span style="font-style: italic;">fastest </span>way to 'solve' the current <span style="font-style: italic;">financial</span> problem was for the FED to start writing credit default swaps. In a (limited) sense, that is what the plan does, because the FDIC is providing 'guarantees' on debt, for a "fee", that will be used to purchase risky assets.<br /><br />It's getting a nasty reception, from sensible people.<br /><br />It does seem that the financing of the plan is getting the most fire, because it interferes with the pricing of assets (<a href="http://krugman.blogs.nytimes.com/2009/03/23/geithner-plan-arithmetic/">Krugman</a>, <a href="https://self-evident.org/?p=502">Self-evident</a>).<br /><br />Leverage <span style="font-style: italic;">does not</span> change the expected value of an asset. However, the presence of non-recourse loans does change the ROI, and that will cause people to bid up.<br /><br />How much?<br /><br />Well on my figures, it's not nearly as much as Paul's worried about. With an 80% standard deviation in the price of the 'toxic pool' of assets, I come up with a maximum 'subsidy' of about 11% change in the bid, the fair-value price, which occurs at the maximum leverage they propose (1:6).<br /><br />This will not break the bank.<br /><br />The quibble <span style="font-style: italic;">could be</span> handled by an upfront FDIC financing 'fee', which could be set so as to price-out the value of non-recourse financing (at 11% in our maximum example below). It would raise the minimum private investment from circa 17% to circa 26%, as well., although fees are technically not 'equity'.<br /><br />What is scary is that, the public takes circa 8.6 times the <span style="font-style: italic;">dollar </span>amount of <span style="font-style: italic;">downside </span>risk as does private part, at the maximum leverage. With an FDIC financing fee, as I suggest, that reduces to about 4.8x, which is still sizable. The public has far bigger shoulders, here.<br /><br />Put another way, an 80% standard deviation for 'toxic assets' is way out of whack with a leverage ratio of 1:6 ... so is 50%, 40%, or maybe even 30%. [I suppose this is why the distressed asset guys so seldom use leverage, let alone quite so much.]<br /><br />Basically, one would hope that they could do with a lot less leverage, that is, with a greater public-private partnership.<br /><br /><span style="font-weight: bold;">IT'S NOT QUITE A BRADY PLAN, BUT ...</span><br /><br />So, the focus is on the FDIC, how much insurance 'fee' they are going to charge and how they will determine how much leverage to use. Both are linked to their estimates of credit risk, primarily.<br /><br />Also, the recalcitrant bad-loan holders will need to be forced to disgorge, competitively or by the regulator's stress-test.<br /><br />Last, no one really knows how the RMBS housing markets will behave, as the efforts to stem foreclosures kick in.<br /><br /><span id="fullpost"><hr /><br /></span>Amicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.com0tag:blogger.com,1999:blog-3735454068472137124.post-25707909725263349342009-02-05T10:11:00.007-05:002009-03-25T20:44:33.806-04:00"Lemon Tree, Very Pretty"<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEht9qOD9Sx4mgfMZhZYkHkWIerO951WwjwZfMux4_D7Xfcc8eDZ8KSEodfvt9YPeu3mxCebRX8SA6N92LXpobjPQh4MMAa3vxR4C6KAgG8gJS8qJ1miApu3LnCUkAyYTcB_ouX2N_ciBwZq/s1600-h/LemonTreeLC.jpg"><img style="margin: 0pt 0pt 10px 10px; float: right; cursor: pointer; width: 50%;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEht9qOD9Sx4mgfMZhZYkHkWIerO951WwjwZfMux4_D7Xfcc8eDZ8KSEodfvt9YPeu3mxCebRX8SA6N92LXpobjPQh4MMAa3vxR4C6KAgG8gJS8qJ1miApu3LnCUkAyYTcB_ouX2N_ciBwZq/s400/LemonTreeLC.jpg" alt="" id="BLOGGER_PHOTO_ID_5299330349301813554" border="0" /></a><span style="font-weight: bold;">IN SEARCH OF CHERRY SOCIALISM</span><br /><br />The foot pounding to avoid <a href="http://krugman.blogs.nytimes.com/2009/02/02/lemon-credit/">lemon socialism</a>, in which citizen-taxpayers "agree" to socialize the risks and privatize the returns can be heard across the plains. <span style="font-style: italic;">Openly </span>agree, one should say, to contrast with the regular way, which is to have lemon socialism hidden in laws and regulations (from both political parties) that enable misalignment of risks and rewards.<br /><br />But, these days, we have to eat the lemon. At least on the banking side.<br /><br />Obama's team will never socialize the big banks, fully, despite that the best case for it might be purging a generation of dead-head management and elevating some people who really do know the risks of modern financial products and markets. (Cleaning out corporate <span style="font-style: italic;">boards </span>is another good idea, as should have been done wholesale at Merrill and Lehman, right?)<br /><br />So, what other choice is there?<br /><br /><span style="font-weight: bold;">PICK THE SIZE OF YOUR LEMON, PEEL, THEN EAT</span><br /><br /><span style="color: rgb(204, 102, 0); font-weight: bold;">The best combination is for the Treasury and Fed to work together</span>. The Treasury provides the risk capital and the Fed has available infinite leverage (at least for a time).<br /><br />The private sector, particularly the distressed assets crew, knows how to value assets no one wants, much. <span style="font-weight: bold; color: rgb(204, 102, 0);">The best of all worlds is to share risk-capital with the private sector</span>, to scare-up a public-private partnership, and leverage it with the Fed-Treasury combo. That's one way to get past the problem of government getting duped in setting/taking a price on things its bureaucrats don't understand.<br /><br />Another risk-sharing is to pre-package large-bank bankruptcies, <span style="color: rgb(204, 102, 0); font-weight: bold;">allowing banks (and some non-banks) to trade out of their debt-obligations at or near market prices or at zero, if necessary</span>. A restructuring of their liabilities will allow further risk-sharing with public funds. How? Well, the Treasury can 'substitute' the erased liabilities with recourse provisions. The banks sell assets at a price to the Treasury, who picks up an amount of risk consistent with the Treasury's economic forecasts, but the banks share or assume risk that the asset values come in below that.<br /><br /><span style="font-weight: bold; color: rgb(204, 102, 0);">Exchanging debt obligations for recourse guarantees</span> is another public-private risk sharing that might work, if it is enough in the mid-term to avoid a terrible, terrible long-term.<br /><br />The truth takes only a few words (to borrow a famous phrase from Chief Joseph). This might be the American solution, one that contrasts with the way that Europe have done so far and that Japan did a long while ago.<br /><br />I wrote this in 20 mintues this morning. I have no idea what is taking weeks and weeks to conceptualize, inside the Obama team, unless it is the gory detail of regulatory structure redesign or a forward-looking, step-by-step to step around too-big-to-fail.<br /><br />Maybe they are trying to decide what to do with housing market intervention, first? That would make sense. Soon, they should have had enough time for a masterpiece, though, so my expectations are high.Amicushttp://www.blogger.com/profile/13535211912769378958noreply@blogger.com0