04/12/2009
Quote posted at 20:22
Jerry Pournelle, in a TWIT podcast quoted in The Bob - The Money is Moving in Circles
Quote posted at 18:22
Distressed Debt Investing: Wisdom from Seth Klarman - Part 6 (via nonolet)
Of course, it used to be easier to invest when you could simply make a value judgement instead of wondering when a massive, leveraged investor like GS or Paulson or Galleon was coming along to be a “contrarian” and crush sound investing with pure “I’m bigger than you” speculative power or insider shit. Nowadays it’s not enough to just price a security to risk, you have to price in the participation of leviathans.
(via unsolicitedanalysis) (via nonolet)
Quote posted at 16:21
Andrew Heaney, a senior executive at TalkTalk, one of the UK’s largest internet service providers, quoted by Paul Marks in Net piracy: The people vs the entertainment industry - tech - 03 December 2009 - New Scientist
Quote posted at 09:02
03/12/2009
Andrew G Haldane, Executive Director, Financial Stability, Bank of England, and Piergiorgio Alessandri in Banking on the State (PDF)
Quote posted at 22:50
Professor Keith Hart, in Angry Bear: Cross-post: A human economy for the twenty-first century
Quote posted at 20:50
Out-of-the-money options: The payoffs to high-risk lending can be replicated using an alternative strategy of writing deep out-of-the-money options. This can be achieved, for example, by selling protection in the CDS market. The writer of that protection receives an insurance premium and thus a steady source of income ingood states of the world. Because of that, this strategy appears to generate “alpha” – excess returns – during the good times.
In fact, this strategy is a wolf wrapped in sheep’s clothing; it is beta dressed up as alpha. In the event of a bad state of the world – default by the reference entity in a CDS context – the writers of the insurance suffer a significantly negative payoff, eliminating the apparent alpha earned in good states (Figure 3). This was, in effect, the AIG strategy. AIG is believed to have written around $1.0 trillion of CDS protection. This strategy delivered large apparent “alpha” returns during the disco years. But when the music ceased and true beta was revealed, AIG required state support of around $180bn.
„Andrew G Haldane, Executive Director, Financial Stability, Bank of England, and Piergiorgio Alessandri in Banking on the State (PDF)
Quote posted at 18:48
Quote posted at 16:48
By the start of this century, bank balance sheets were more than five times annual UK GDP. In the space of a generation, the insurable interests of the state had risen tenfold.
By itself, this expansion of balance sheets need not imply that the state was bearing greater implicit risk. For example, banks could have self-insured by holding larger buffers of capital and liquidity. In practice, the opposite happened (Charts 2 and 3). Capital and liquidity ratios have fallen secularly in the UK and US for over a century.
Since the start of the 20th century, capital ratios have fallen by a factor of around five in the US and UK. Liquidity ratios have fallen by roughly the same amount in half that time. Taken together, these balance sheet trends indicate a pronounced rise in banking system risk and hence in potential demand for state insurance. They have also affected the returns required by bank shareholders.
As banks moved up the risk spectrum, the return required by shareholders has predictably increased. Between 1920 and 1970, the return on UK banks’ equity averaged below 10% per annum, with low volatility of around 2% per year (Chart 4). This was roughly in line with risks and returns in the non-financial economy.
The 1970s signalled a sea-change. Since then returns on UK banks’ equity have averaged over 20%. Immediately prior to the crisis, returns were close to 30%. The natural bedfellow to higher return is higher risk. And so it was, with the volatility of UK banks’ returns having trebled over the past forty years.
4
Andrew G Haldane, Executive Director, Financial Stability, Bank of England, and Piergiorgio Alessandri in Banking on the State (PDF)
Quote posted at 14:46
The cash in the general operating account exceeded $6 billion by the time Bok and El-Erian left. Problems were starting to surface in housing and the credit markets in 2007. But still the cash policy went unchanged. It wasn’t until early 2008 that a chorus of concern was rising from members of the financial staff, professors on advisory committees, and the board. They decided to start pulling some of the cash out of the endowment - in $250 million chunks - quarterly, according to Harvard officials briefed on the plan. But it was too late. They got one slug of money out in March 2008, and then the markets seized up.
The very thing that the former endowment chiefs had worried about and warned of for so long then came to pass. Amid plunging global markets, Harvard would lose not only 27 percent of its $37 billion endowment in 2008, but $1.8 billion of the general operating cash - or 27 percent of some $6 billion invested. Harvard also would pay $500 million to get out of the interest-rate swaps Summers had entered into, which imploded when rates fell instead of rising. The university would have to issue $1.5 billion in bonds to shore up its cash position, on top of another $1 billion debt sale. And there were layoffs, pay freezes, and deep, university-wide budget cuts.
„Beth Healy in Harvard ignored warnings about investments - The Boston Globe
Quote posted at 12:46
Arming Goldman With Pistols Against Public: Alice Schroeder - Bloomberg.com
Quote posted at 10:35
02/12/2009
Quote posted at 23:12
» Anatomy of a Government-Abetted Fraud: Why Indymac/OneWest Always Forecloses
That is a sweet deal. The loss-share agreement OneWest entered into with the FDIC pays out better on foreclosures than for mods. Left Hand, I’d like to introduce you to Right Hand. You two should probably coordinate a little better.
Link posted at 21:09
Janet Takavoli in The Bailout Mess: Attempt to Abandon Mark-to-Market Accounting
Quote posted at 19:08
Goldman questioned PriceWaterhouse, Goldman’s and AIG’s common auditor, about prices. Goldman wanted lower prices, which meant that AIG would have to produce more collateral. When AIG was downgraded in September 2008, AIG was required to put up an aggregate amount of $14.5 billion in additional collateral to equal the full difference between original prices and market prices. But “market prices” in this illiquid market were influenced by Goldman Sachs.
Goldman was right to question the prices, make calls for collateral, and protect itself.
Goldman’s activity was not the same as that of an arsonist buying fire insurance, but its trading activities with AIG and others were accelerants of AIG’s problems.
„Janet Takavoli in Goldman’s Undisclosed Role in AIG’s Distress
Quote posted at 17:07
