one year later - W21st NYC on Diigo

08 Dec 09

06 Dec 09

FT.com / Companies / Banks - Goldman looks to quell anger on bonuses

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Goldman redux chutzpah cap v cap one year later and the beat goes on

FT.com / US / Economy & Fed - Treasury secretary challenges Goldman aid claims

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Goldman as god credit crisis Geithner squeaks cap v cap and the beat goes on one year later

Tim Geithner on Friday rejected
Goldman Sachs’ claim that it could have withstood the financial crisis without government intervention, adding that all banks were at risk of being wiped out.

05 Dec 09

Measuring The Fiscal Costs Of Not Fixing The Financial System « The Baseline Scenario

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regulation proposal one year later cap v cap and the beat goes on

The U.S. does not yet have a similarly effective way to deal with the insolvency of large financial institutions. The dire implications of this gap in our system have become much clearer since fall 2008 and there is no immediate prospect that the underlying problems will be addressed by the regulatory reform proposals currently on the table. In fact, our underlying banking system problems are likely to become much worse.

04 Dec 09

03 Dec 09

BofA Set to Repay Taxpayers - WSJ.com

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cap v cap and the beat goes on one year later bankers dictate terms

"We appreciate the critical role that the U.S. government played last fall in helping to stabilize financial markets, and we are pleased to be able to fully repay the investment, with interest," said Kenneth D. Lewis, Bank of America's president and chief executive.
As one of the seven companies that received "extraordinary assistance" from the government, Bank of America has been subject to tougher restrictions than other financial firms, including having pay set and reviewed by Kenneth Feinberg, the Treasury's special master for compensation. Those restrictions have complicated the search for Mr. Lewis's successor.

FT.com / Capital Markets - Fears grow about overheated US debt market

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cap v cap and the beat goes on one year later debt markets

Some of the most controversial financing practices of the credit-bubble years – from cov lite loans to Pik toggle notes and dividend recap exercises – have returned to Wall Street, stoking fears that debt markets are growing overheated.

29 Nov 09

Wall Street’s Spin Game - NYTimes.com

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cap v cap and the beat goes on one year later Wall Street compensation Goldman

It is a tough brief, even for Manhattan’s skilled public relations industry. Last week, New York State’s comptroller reported that Wall Street profits this year are on track to exceed the record set at the height of the credit bubble. So what to do? Here are some suggestions about making the unloved Masters of the Universe loveable again.
At the moment, that doesn’t appear likely. Six of the top American bank holding companies set aside $112 billion for salaries and bonuses in the first nine months, according to New York’s comptroller.

27 Nov 09

FT.com / In depth - Greece and Dubai show system remains unstable

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Greece Dubai-some thoughts sovereign bonds bubble? one year later Tett

A watershed in the derivatives world could be reached this week: the cost of insuring against a bond default by Greece, using credit derivatives, may rise above the comparable metric for Turkey for the first time.
Thus on Thursday – as markets reeled from the Dubai shock and investors fled from risk – the bid-offer spread on five-year Greek CDSs was 201bp-208bp, according to Markit. That of Turkish CDSs was 207bp-212bp, leaving them neck and neck (and according to Bloomberg data, in some trades the Greek CDS was even higher than Turkey).

Op-Ed Columnist - Taxing the Speculators - NYTimes.com

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Tobin tax credit crisis origin repo reform cap v cap one year later

Should we use taxes to deter financial speculation? Yes, say top British officials, who oversee the City of London, one of the world’s two great banking centers. Other European governments agree — and they’re right.
It would, as Tobin said, “throw some sand in the well-greased wheels” of speculation.
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- I’m tempted to say, agreement on the part of almost everyone not on the financial industry’s payroll
- The answer is, while traders are all over the place, a majority of their transactions are settled — i.e., payment is made — at a single London-based institution. This centralization keeps the cost of transactions low, which is what makes the huge volume of wheeling and dealing possible. It also, however, makes these transactions relatively easy to identify and tax.
- But bad investments aren’t the whole story of the crisis. What turned those bad investments into catastrophe was the financial system’s excessive reliance on short-term money.
- As Gary Gorton and Andrew Metrick of Yale have shown, by 2007 the United States banking system had become crucially dependent on “repo” transactions, in which financial institutions sell assets to investors while promising to buy them back after a short period — often a single day. Losses in subprime and other assets triggered a banking crisis because they undermined this system — there was a “run on repo.”
- But it could be part of the process of shrinking our bloated financial sector. On this, as on other issues, the Obama administration needs to free its mind from Wall Street’s thrall.

Wall Street Resumes Deal Financing - WSJ.com

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and the beat goes on cap v cap M&A one year later

J.P. Morgan Chase & Co. is ponying up $2.85 billion in financing to Denbury Resources Inc. as part of the oil producer's takeover of Encore Acquisition Co., announced earlier this month. Goldman Sachs Group Inc. committed to provide more than $3 billion in debt to help private-equity firm TPG Inc. and the Canada Pension Plan Investment Board take prescription-drug data provider IMS Health Inc. private in the largest leveraged buyout since May 2008
This year, banks are expected to arrange deal-related U.S. loans totaling about $90 billion. That is a far cry from the $289 billion in 2008 and record high of $617 billion in 2007, according to Dealogic.

23 Nov 09

The Financial Crisis - One Year Later - The New York Times

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one year later cap v cap graphics biblio credit crisis chronology

Fair Game - Revisiting a Fed Waltz With A.I.G. - NYTimes.com

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SIGTARP Goldman redux cap v cap and the beat goes on one year later Fed as arm of private banks

On the question of whether this payout was what the report describes as a “backdoor bailout” of A.I.G.’s counterparties, Mr. Barofsky concluded: “The very design of the federal assistance to A.I.G. was that tens of billions of dollars of government money was funneled inexorably and directly to A.I.G.’s counterparties.” The report noted that this was money the banks might not otherwise have received had A.I.G. gone belly-up.
Finally, Mr. Barofsky pokes holes in arguments made repeatedly over the past 14 months by Goldman Sachs, A.I.G.’s largest trading partner and recipient of $12.9 billion in taxpayer money in the bailout, that it had faced no material risk in an A.I.G. default — that, in effect, had A.I.G. cratered, Goldman wouldn’t have suffered damage.
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- Mr. Barofsky says the Fed failed to strong-arm the banks when it was negotiating payouts on the A.I.G. contracts. Rather than forcing the banks to accept a steep discount, or “haircut,” the Fed gave the banks $27 billion in taxpayer cash and allowed them to keep an additional $35 billion in collateral already posted by A.I.G. That amounted to about $62 billion for the contracts, which the report describes as “far above their market value at the time.”
- As Goldman prepares to pay out nearly $17 billion in bonuses to its employees in one of its most profitable years ever, it is important that an authoritative, independent voice like Mr. Barofsky’s reminds us how the taxpayer bailout of A.I.G. benefited Goldman.
- So is Janet Tavakoli, an expert in derivatives at Tavakoli Structured Finance, a consulting firm. “On Sept. 16, 2008, David Viniar, Goldman’s chief financial officer, said that whatever the outcome at A.I.G., the direct impact of Goldman’s credit exposure would be immaterial,” she said. “That was false. The report states that if the New York Fed had negotiated concessions, Goldman would have suffered a loss.”
- The report says that Goldman would have had difficulty collecting on the hedges it used to insulate itself from an A.I.G. default because everyone’s wallets would have been closing in a panic.
- “The prices of the collateralized debt obligations against which Goldman bought protection from A.I.G. were in sickening free fall, and the cost of replacing A.I.G.’s protection would have been sky-high,” she said. “Goldman must have known this, because it underwrote some of those value-destroying C.D.O.’s.”
- Ms. Tavakoli argues that Goldman should refund the money it received in the bailout and take back the toxic C.D.O.’s now residing on the Fed’s books — and to do so before it begins showering bonuses on its taxpayer-protected employees.
- Perhaps Mr. Barofsky will do that audit, and closely examine the securities that A.I.G. insured and that Wall Street titans like Goldman underwrote.
- According to an e-mail message that Goldman sent to the New York Fed at the time, Mr. Geithner talked about the article with Mr. Viniar, Goldman’s chief financial officer, before calling me. When Mr. Geithner called, he said that Goldman had no exposure to an A.I.G. collapse and that the article had left an incorrect impression about that. When I asked Mr. Geithner if he, as head of the regulatory agency overseeing Goldman, had closely examined the firm’s hedges, he said he had not.
- Probing, in-depth analyses of regulatory responses to the financial meltdown are worth their weight in gold. Mr. Barofsky’s certainly is. Yet in its rush to put financial reforms into effect, Congress seems uninterested in investigating or grappling with truths contained in such reports — and until it does, our country’s economic and financial system will continue to be at risk.

22 Nov 09

Editorial - Goldman’s Non-Apology - NYTimes.com

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Goldman casts crumbs cap v cap one year later Mammon

Even if he had said, “we’re sorry,” it would have been hollow since he never actually said what he was sorry for (“things” doesn’t cut it) or to whom he was apologizing.
So, here’s a thought: A multibillion-dollar gift to the federal Bureau of the Public Debt, which accepts tax-deductible donations to reduce the national debt. The donation can come from the bonuses; that way, it would not harm shareholders, because they only get their cut after the bonuses are paid. Goldman’s tax savings from the donation could help finance the small-business initiative.

21 Nov 09

FT.com / Europe - Germany warns US on market bubbles

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Goethe cap v cap carry-trade one year later

- See Krugman (Nov. 20 blog) for contrary opinion on consequences of a dollar carry-trade blowout (specifically, that it would be a financial and not a fiscal problem). - on 2009-11-21
Add Sticky Note
He added: “That low interest rate currencies such as the US dollar are increasingly being used as a basis for currency carry trades should give pause for thought. If there was a sudden reversal in this business, markets would be threatened with enormous turbulence, including in foreign exchange markets.”
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- Separately, Jean-Claude Trichet, ECB president, issued his strongest warning yet that banks must control pay and bonuses.
- Striking a noticeably stiffer tone, Mr Trichet told the Frankfurt conference: “Profits earned should be used, as a priority, to build capital and reserves, rather than be paid out as dividends or excessive compensation.”
- The ECB president quoted a warning by Johann Wolfgang von Goethe, Frankfurt’s most famous son, on the need for self-restraint: “If I wanted to lavishly let myself go, I could well destroy myself and my environment.”

Op-Ed Columnist - The Big Squander - NYTimes.com

The regulatory complacency referred to by Krugman is actually the explicit acquiescence, if not complicity, of the Administration and Congress in the transfer of power to the major investment banks.

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Wall Street government cap v cap and the beat goes on one year later SIGTARP

For the A.I.G. rescue was part of a pattern: Throughout the financial crisis key officials — most notably Timothy Geithner, who was president of the New York Fed in 2008 and is now Treasury secretary — have shied away from doing anything that might rattle Wall Street. And the bitter paradox is that this play-it-safe approach has ended up undermining prospects for economic recovery. For the job of fixing the broken economy is far from done — yet finishing the job has become nearly impossible now that the public has lost faith in the government’s efforts, viewing them as little more than handouts to the people who got us into this mess.
About the A.I.G. affair: During the bubble years, many financial companies created the illusion of financial soundness by buying credit-default swaps from A.I.G. — basically, insurance policies in which A.I.G. promised to make up the difference if borrowers defaulted on their debts. It was an illusion because the insurer didn’t have remotely enough money to make good on its promises if things went bad. And sure enough, things went bad.
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- So it seemed only fair for them to bear part of the cost of the bailout, which they could have done by accepting a “haircut” on the amounts A.I.G. owed them. Indeed, the government asked them to do just that. But they said no — and that was the end of the story. Taxpayers not only ended up honoring foolish promises made by other people, they ended up doing so at 100 cents on the dollar.
- But this seems like a naïve view of how Wall Street works. Major financial firms are a small club, with a shared interest in sustaining the system; ever since the days of J.P. Morgan, it has been common in times of crisis to call on the big players to forgo short-term profits for the industry’s common good.
- that put up the funds to rescue the hedge fund Long Term Capital Management.
- Bear Stearns, the investment bank, earned itself a lot of ill will by refusing to participate in that 1998 rescue,
- So officials could have called on bankers to offer a better deal,
- And, as I said, these seemingly safe choices have now placed the economy in grave danger.
- So here’s the real tragedy of the botched bailout: Government officials, perhaps influenced by spending too much time with bankers, forgot that if you want to govern effectively you have retain the trust of the people. And by treating the financial industry — which got us into this mess in the first place — with kid gloves, they have squandered that trust.

20 Nov 09

Interest rates: the phantom menace - Paul Krugman Blog - NYTimes.com

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carry-trade interest rates unemployment recovery cap v cap and the beat goes on one year later

Underlying these low rates is, in turn, the fact that overall borrowing by the nonfinancial sector hasn’t risen: the surge in government borrowing has in fact, less than offset a plunge in private borrowing.
Bear in mind that the whole problem right now is that the private sector is hurting, it’s spooked, and it’s looking for safety. So it’s piling into “cash”, which really means short-term debt.
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- (Treasury bill rates briefly went negative yesterday)
- call it a carry trade if you like, but it’s a normal and necessary thing.
- Still, what about the possibility of a squeeze, in which rising rates for whatever reason produce a vicious circle of collapsing balance sheets among the carry traders, higher rates, and so on?
- It would basically be saying not that the government is borrowing too much, but that the people conveying funds from savers, who want short-term assets, to the government, which borrows long, are undercapitalized.
- And the remedy should be financial, not fiscal.
- is exactly what you would expect to see even if fiscal policy were on a perfectly sustainable trajectory.
- And one last point: I just don’t think the inner circle gets how much danger we’re in from another vicious circle, one that’s real, not hypothetical. The longer high unemployment drags on, the greater the odds that crazy people will win big in the midterm elections — dooming us to economic policy failure on a truly grand scale.

U.S. Mortgage Delinquencies Reach a Record High - NYTimes.com

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foreclosures increase one year later

Five million more unemployed people over the last year has turned into about two million more overdue loans, he added.
Unless foreclosure modification efforts begin succeeding on a permanent basis — which many analysts say they think is unlikely — millions more foreclosed homes will come to market.
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- The association’s delinquency numbers do not include those who are actually in foreclosure, a figure that also rose sharply, to 4.47 percent of all loans. A year ago, it was 2.97 percent.
- The combined percentage of those in foreclosure as well as delinquent is 14.41 percent, or about one in seven mortgage holders. About 52 million homeowners have mortgages.
- The overall third-quarter delinquency rate is the highest since the association began keeping records in 1972. It is up from about one in 14 mortgage holders in the third quarter of 2008.
- High-quality prime fixed-rate mortgages now represent the largest share of new foreclosures.

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FT.com / Capital Markets - Contingent convertible bonds explained