Bailout

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.

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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...

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