Legal Commentary

ICE to start clearing CDS on Monday

Posted on March 06, 2009
ICE Trust?the CDS clearinghouse backed by the major dealer banks?has cleared the final regulatory hurdle (SEC approval), and will start clearing credit default swaps (CDS) on Monday. SEC exemptive order here; Reuters article here; Bloomberg article here...

TALF to accept CDOs?

Posted on March 04, 2009

Fed Approves ICE's CDS Clearinghouse

Posted on March 04, 2009

Another Dishonest NYT Editorial on AIG

Posted on March 03, 2009

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New CDS Contract Terms (Draft)

Posted on March 02, 2009

Understaffing at Treasury

Posted on February 28, 2009

Buffett: Collateralization is Good, Except When it's Bad

Posted on February 28, 2009

$750 More for Banks in Obama's Proposed Budget

Posted on February 26, 2009
So reports Bloomberg:President Barack Obama?s first budget request would provide as much as $750 billion in new aid to the financial industry, as well as overhaul the U.S. health-care system and launch a program to cut carbon-dioxide emissions....The official, speaking on condition of anonymity, said the White House hasn?t decided whether the $750 billion in additional aid to the financial industry will be needed...

Stress Test and House Prices

Posted on February 25, 2009
Paul Krugman is unhappy with the house price assumptions in the "adverse scenario" of the Treasury and FDIC's stress test:And color me baffled at what they consider an adverse case for housing prices. They consider a fall of housing prices, as measured by the Case-Shiller 10-city index, of 27 percent from 4th-quarter 2008 levels to be as bad as it could get...

Good Questions From An Unlikely Source

Posted on February 24, 2009
Am I crazy, or did the most articulate and useful questions for Bernanke in the Senate Banking Committee hearing really come from Bob Corker? Questions in committee hearings are usually irrelevant and often barely coherent, but Corker's questions about the details of the Fed's "stress tests" of the major banks were actually quite good, and made him look reasonably well-informed...

Elizabeth Duke Defends the CRA

Posted on February 24, 2009
Fed Governor Elizabeth Duke gave a speech on the Community Reinvestment Act (CRA) today, and had some harsh words for the crazy right-wingers who claim that the CRA caused the subprime crisis:The most recent misperception promulgated by many who either do not know much about the law or don't like it, is that the CRA caused the subprime mortgage meltdown...

Citi's CDS

Posted on February 24, 2009
This is kind of humiliating for Citi. Credit defaults swaps on Citi's subordinated debt are now trading on a points-upfront basis?that is, in addition to fixed quarterly premiums of 500bps, protection sellers are demanding substantial upfront payments to insure Citi's sub debt...

Technology!

Posted on February 22, 2009
Tom Friedman wants the government to focus on "real innovators," and to that end, he has a suggestion:As we invest taxpayer money, let?s do it with an eye to starting a new generation of biotech, info-tech, nanotech and clean-tech companies, with real innovators, real 21st-century jobs and potentially real profits for taxpayers...

Maureen Dowd: Obama's election absolved us of racism

Posted on February 22, 2009
Maureen Dowd apparently thinks Obama's election ended racism in America:Obama is oozing empathy compared with his attorney general, who last week called us ?a nation of cowards? about race.Eric Holder, who showed precious little bravery in standing up to Clinton on a pardon for the scoundrel Marc Rich, is wrong...

What good reporting on the CDS market looks like

Posted on February 22, 2009
Given how atrocious the reporting on credit default swaps has been during the financial crisis, it's refreshing to see this paragraph in a Bloomberg article by Shannon Harrington and John Rega about CDS clearinghouse developments:Bets made through credit-defaults swaps helped push American International Group Inc...

The Recession and Economic Geography

Posted on February 22, 2009
Richard Florida's big article in The Atlantic about the recession's impact on economic geography is decent enough, though not terribly original. If you're already familiar with Florida's work, you won't find anything new.One frustrating aspect of the article is that Florida constantly conflates the changes he wants to happen with the changes that will happen...

Stupid Republican Arguments

Posted on February 22, 2009
I'm not even sure what this means:Like Mr. Sanford, Republican Gov. Haley Barbour of Mississippi said Sunday that he would also reject some of the stimulus funds."There is some [money] we will not take in Mississippi," he said on CNN's "State of the Union...

Law for law's sake

Posted on February 21, 2009
Megan McArdle notes that the "mania for rules" in the public sector is different than in the private sector: in the private sector, "companies that become too encrusted eventually succumb to competition from nimbler firms," whereas in the public sector "[t]he feedback to discipline ...

How Quickly Things Change

Posted on February 21, 2009
With its endowment down an estimated 30%, Harvard is evidently "short on cash":The school relies on its endowment to generate a third of the money for its operations, and the endowment is on the verge of posting its biggest loss in 40 years. With much of its money tied up for the long term, it is scrambling to meet some obligations...

The Purpose of TARP

Posted on February 21, 2009
I'm continually amazed by how quickly commentators have forgotten that the primary purpose of TARP was to prevent the complete collapse of the U.S. (and global) financial system, and not just to increase bank lending to consumers and businesses. We were in the middle of an epic financial panic, complete with a classic run on key parts of the shadow banking system, and a devastating margin spiral that had engulfed the entire financial system...

Better Than Nothing

Posted on February 20, 2009
Beating a credit rating agency ($) in rating tranches of synthetic CDOs isn't something to write home about, but it's better than nothing:In this paper, we demonstrate how CDS-implied ratings for corporate reference names, together with an analytic CDO ratings model, can be used to derive CDS-implied tranche ratings for corporate synthetic CDOs (CSOs)...

Yes, Fire John Yoo

Posted on February 20, 2009
I agree with Brad DeLong: John Yoo should be fired.I am not a constitutional lawyer. I think most non-lawyers would be surprised to find that a vast majority of U.S. constitutional law is mind-numbingly boring.But a good friend from law school who is a bona fide constitutional law expert has repeatedly assured me that Yoo's so-called "Torture Memo" is undeniably false, and that Yoo is effectively guilty of professional misconduct...

Optimism?

Posted on February 20, 2009
I can't remember the last time Paul Krugman was optimistic about the economy (and his pessimism was, obviously, entirely warranted). So I was caught off-guard by this little ray of optimism in his column this morning:So will our slump go on forever? No...

Ex-Bankers

Posted on February 14, 2009
I want to take issue with something Simon Johnson of MIT said on Bill Moyers' show tonight, because I think it was very insulting. From the transcript:BILL MOYERS: Geithner has hired as his chief-of-staff, the lobbyist from Goldman Sachs. The new deputy secretary of state was, until last year, a CEO of Citigroup...

Cato in 2007: Emulate Iceland!

Posted on February 13, 2009
Brad DeLong flags a series of horrendous articles by Cato Institute "scholar" Daniel Mitchell, but the best one is the article exhorting advanced economies to emulate Iceland:March 21, 2007: Iceland Comes in From the Cold With Flat Tax Revolution: Listen up, Gordon Brown and George Osborne...

The Venturesome Economy

Posted on February 13, 2009
I want to second Reihan Salam's recommendation of The Venturesome Economy, by Amar Bhidé. It's a tremendous book; I probably learned more from Bhidé's book than any book I've read in several years (save possibly for Power and Plenty). Bhidé examines in detail how innovation actually occurs in modern economies, and demonstrates how little successful innovation has to do with high-level scientific research...

Index CDS Craziness

Posted on February 13, 2009
Tyler at Zero Hedge has an excellent post about index basis trades?arbitraging the differences in pricing between CDS indices and their single-name constituents?and how the IG11 index basis (or "skew") has exploded negative ever since Lehman. As Tyler notes, three IG11 constituents are trading on a points upfront basis, and considering that the IG11 is trading 46bps wide to the deal spread, that makes it pretty expensive to put on an index basis trade...

Reach Conclusion, Conduct Research, Produce Documentary

Posted on February 13, 2009
I like how Michael Moore has already concluded that the financial crisis is "the biggest swindle in American history" and "the greatest crime story ever told," even though he's obviously still in the research stage. That sounds like a recipe for a fact-based, impartial analysis best-selling documentary.

Amended Derivatives Bill Voted Out of Committee, Killed by Frank

Posted on February 12, 2009
An amended version of Batshit McCrazy's Rep. Collin Peterson's derivatives bill was voted out of the House Agriculture Committee today [update: post-markup information available here; main revisions in the Manager's amendment and the Boswell amendment]...

Strange Complaints

Posted on February 11, 2009
Tim Geithner is taking a lot of criticism for his lack of specificity yesterday, but some of the criticism, like this from the WSJ, is just absurb:Some investors said the program, called the Public-Private Investment Fund, likely will be too small to spur purchases of battered mortgages and other assets...

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