Bailout

Why we can?t trust market signals

Posted on July 01, 2009
He's not worried, though: It is now well documented that asset class correlations tend to one during times of economic and financial market distress. 2008 was nothing if not characterized by economic distress and financial market instability. ... And trying to apply an implicit efficient-markets hypothesis these days -- the markets are going up so there must be some good news -- is ludicrous: it's precisely at times like this, when correlations are at all-time highs, that the EMH breaks down entirely.

The economics of vendor permits

Posted on July 01, 2009
Julia Moskin reports on Manhattan street vendors: Of all the gray areas for food vendors ? who are regulated by a cluster of agencies including the Department of Consumer Affairs, the Police Department and the New York State sales tax authority ? permits are the murkiest...

GE Capital datapoint of the day

Posted on June 30, 2009
What's not clear at all is how on earth the US government intends to separate GE Capital from its parent, in line with the current administration's promises that systemically-important financial institutions can't be owned by non-financial companies. GE ended up borrowing disproportionately from the TLGP because it had a disproportionately large amount of short-term liabilities which needed to be rolled over -- in that sense it was even more of a bank than most banks, if your definition of a bank is any entity which borrows short and lends long.

Can the Fed raise rates earlier than expected?

Posted on June 30, 2009
At the margin, a Fed funds rate at 1% or 1.5% is not going to put much in the way of a visible brake on economic growth -- especially not so long as all the Fed's liquidity facilities are still up and running. But by raising short-term interest rates in the Fed funds market, and by keeping long-term interest rates low through quantitative easing, the Fed would be able to act much more decisively if and when inflation fears really started to appear.

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MBA, RIP

Posted on June 30, 2009
Philip Delves Broughton on what you really learn at Harvard Business School: Everyone knows what they're best at, but often they think it's of no value. I felt like that when I graduated from HBS, and I was wrong.

Why CRA loans weren?t toxic subprime loans

Posted on June 30, 2009
Mike at Rortybomb wades into the CRA debate with a very good point: toxic subprime loans bear almost no relation to CRA loans.

Video of the day, Swap spreads edition

Posted on June 30, 2009
Nick Gogerty deserves a medal for this: It almost makes you want to find out what a swap spread is. (Via Kedrosky)

Endowment datapoint of the day

Posted on June 30, 2009
Big university endowments like to think that their returns constitute alpha -- a simple outperformance of the market. But it looks increasingly as though in fact there's a large component of beta -- outperforming when the market goes up and underperforming when it goes down.

The Taleb-GQ emails

Posted on June 30, 2009
The Nassim Taleb exaggeration story simply refuses to die.

The upside of being flamed

Posted on June 30, 2009
The Cajun Boy hits the nail on the head when he describes one of the biggest upsides to opening oneself up to the crazies of the internet by blogging: After a while, writing on the internet thickens your skin to the point where you're easily able to easily differentiate between valid criticism and hateful venom-spewing...

Deceased icon datapoint of the day

Posted on June 29, 2009
From the WSJ : After the deaths of other major stars, including Elvis Presley, in 1977, and Kurt Cobain in 1994, around half of outstanding concert tickets were never returned for refund, according to people in the concert business, because fans preferred to keep them as souvenirs...

Latin coup datapoint of the day

Posted on June 29, 2009
but the big picture is clear: Latin American coups are increasingly rare things. The 1960s saw 12 successful coups in the region; the 1970s saw 9; in the 1980s there were 6; in the 1990s there were 3; and so far this decade there has only been one, in Ecuador in 2000...

The new Oscar math

Posted on June 29, 2009
It's bad for the studios -- which will now have even more films to market to the Academy in the hope of winning the award; it's good for media outlets like Variety which get a lot of those marketing dollars; and it's something of a wash for viewers: Americans have tuned out the Oscars not because ?The Dark Knight? didn?t get a nomination, but because the telecast is jammed with obscure awards that they have no say over ? this isn?t ?American Idol? ? and no rooting interest in...

How to sell TARP warrants

Posted on June 29, 2009
Treasury's proposal is essentially a complicated dance with the banks in question, which involves financial models and a slew of outside consultants and which may or may not end up in front of multiple independent appraisers. ... Says Simon Johnson : The only sensible way to dispose of these options is for Treasury to set a floor price, and then hold an auction that permits anyone to buy any part ? e...

A Carney-Ritholtz CRA debate?

Posted on June 29, 2009
Has John Carney found a backer for a public debate with Barry Ritholtz over whether the Community Reinvestment Act was significantly to blame for the credit crisis? Barry wants the loser to pay the winner "any dollar amount between $10,000 up to $100,000", which could make it very interesting.

Monday links sound a bit funny

Posted on June 29, 2009
Rachman: McCain's tweets " make him sound like a peasant " The House Financial Services Committee is going to have a busy July RT @IDDMagazine Cantor Fitzgerald grows its London leveraged finance team Judis makes the distinction between the unemployment rate (less important) and total unemployment ( very important ) A refreshingly sober look at the NYT's finances Does WaPo know from passive constructions ? Steve Kirsch with a great round-up on why fast reactors must be built If I link from my link blog to a blog of links to blogs of links , and that links back to me, will the snake have eaten its own tail?

Why is it so hard to modify a mortgage?

Posted on June 29, 2009
The first is that it's sheer incompetence -- the banks, at least at senior levels, have lots of good will, but they just can't find the staff to get this stuff done. ... The third explanation is somewhere in the middle: that it was always difficult to modify mortgages, that the massive wave of loan-mod applications has made it harder still, and that banks just move slowly, even if they do have good will.

Why architecture isn?t collectible

Posted on June 29, 2009
A great piece of architecture in a desirable location can sell at a premium, and a great piece of architecture which can b e packed up into six containers and reconstructed anywhere in the world will sell for even more. But in general people looking to buy important architecture only want to do so if there's a reasonable chance of them actually living in the house in question -- at least for some of the year.

The CPSC and homeownership

Posted on June 29, 2009
In other words, it will help put a cap on house prices, since speculators and flippers won't be able to buy anything they like armed with nothing but crossed fingers and a NINJA loan. ... Rather, the positive effects of lower homeownership lie elsewhere: in more liquid labor markets; in thinner and happier people (not to mention much less leveraged households); and in less societal inequality between rich neighborhoods where substantially everybody owns their home and poor neighborhoods where substantially everybody rents.

Manhattan property datapoint of the day

Posted on June 29, 2009
Ilaina Jonas reports on commercial property in Manhattan: During the second quarter an additional 4.7 million square feet of office space was put on the market, surpassing the 3.9 million square feet that hit the market in the first quarter. The really scary thing is that this is presented as good news, due to the positive second derivative: The increase slowed significantly in the latter half of the quarter, according to the report released to Reuters on Sunday.

Media goes barbell

Posted on June 29, 2009
Michael Learmonth today has a look at AOL's fast-expanding suite of web properties, with a quote from AOL's Jeff Levick saying that he "will continue to grow these sites and launch new sites". ... My feeling is that there's media jobs are looking pretty much like a barbell these days: you either work for a last-man-standing monolith or else you're part of a small and nimble team.

Customer-gouging datapoint of the day, Bank of America edition

Posted on June 29, 2009
From WaPo : Bank of America this year raised the maximum number of times customers can get hit with overdraft fees from five a day to 10. This seems incredibly short-sighted to me: BofA here is just asking to get slapped down -- hard -- by Elizabeth Warren when she takes over the new Consumer Financial Protection Agency.

Thursday links state the obvious

Posted on June 26, 2009
"Until Tuesday, mortgages were still being processed without appraisal and income verification docs" Thank you, Alan Greenspan, for telling us that US GDP growth is tied to house prices. ... How Goldman hides risks from investors Why newspapers matter: here and here are important domestic stories which need to be fearlessly reported.

Friday links reinvest in the community

Posted on June 26, 2009
Ryan Chittum buries Carney on CRA Yes, you can raise tariffs on countries which don't have carbon caps or taxes Did the WSJ's Robert Thomson really say that "readers are losers in a world of content verticals... society is content horizontal"? Nemo tries valiantly to translate John Jansen into English , with mixed success Krugman refuted Carney's points about the CRA before Carney even made them Jack Welch's reputation takes another downward lurch as he pushes denialist nonsense from the WSJ editorial page Ritholtz weighs in on the CRA debate

On this we agree: CRA loans weren?t the bad loans

Posted on June 26, 2009
Felix Salmon but only for lmi, which was not the locus of the problem John Carney I don't think you get the bubble without the Fed holding down interest rates and a global savings glut You would have had loose lending standards but not a huge demand for mortgage products...

Annals of regulatory incompetence, FSA edition

Posted on June 26, 2009
I cannot remember the details, it was quite lengthy, but the essence was that "The answer should have been one in 52 except that the magician was tricking us and so really we should ignore this factor..." ... But a principles-based regulator is only as good at its employees, and if the FSA's employees are going to be so rule-bound as to insist that 1-in-52 is the only correct answer to Wilmott's question (as opposed to the only in correct answer to Wilmott's question), then you haven't really achieved anything at all.

Paying for failure, TCI edition

Posted on June 26, 2009
Tom Cahill , June 24: Christopher Cooper-Hohn?s $9.5 billion hedge fund proposed cutting fees and easing withdrawal limits to retain clients after top executives quit and it lost 43 percent last year, according to three investors... ... Matthew Bishop , June 26: As The Economist went to press the Children?s Investment Fund Foundation, a charity based in London, was due to announce that it had received a whopping £495m ($812m) in the 2008 fiscal year from TCI, a hedge fund, under covenants built into the fund when it was founded by Christopher Cooper-Hohn in 2003...

Housing datapoint of the day, Sheila Bair edition

Posted on June 26, 2009
If you think of the housing boom as basically running from 1997 to 2007, Bair bought her house halfway through, and put in a total of $444,500 between purchase price and renovations. She then tried to sell it after the housing bubble had burst for $795,000 -- and finally withdrew the house from the market last week in the hope that the market would improve; she was clearly willing to accept no less than $695,000 for the property.

Goldman Sachs responds to Taibbi

Posted on June 26, 2009
To give just two examples, even with the worst will in the world, the blame for creating the internet bubble cannot credibly be laid at our door, and we could hardly be described as having been a major player in the mortgage market, unlike so many of our current and former competitors...

Adventures in naming, misguided tip-sheet edition

Posted on June 26, 2009
Why oh why did Ron Insana have to call his horrible new product Market Movers ? I never liked that name when I was at Portfolio -- in fact I hated it -- but I did live it for two years, and so now I feel there's some kind of connection between me and Insana.

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