Monthly Archives: October 2008

Recapitalization and the Implicit Treasury Guarantee

Posted on October 10, 2008 by Felix

Tyler Cowen has a very good question: Treasury equity is not the same as debt to the Fed, but are they so different? In some ways the Fed’s I-can’t-just-stop-rolling-it-over-when-I-want contribution is a bit like preferred equity. I think main key … Continue reading →

Posted in bailouts, fiscal and monetary policy | 1 Comment

Lehman CDS: Low Price, Low Volume

Posted on October 10, 2008 by Felix

So, how did that Lehman CDS auction go? On the face of it, not well: the initial recovery price is just 9.75 cents on the dollar. But if you were expecting 86 cents of losses based on a 14-cent recovery, … Continue reading →

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Credit Markets Get Even Scarier

Posted on October 10, 2008 by Felix

John Jansen is scaring me today. Remember the new CDX investment-grade index, IG 11, which just launched? They took the crap out of IG 10 (Fannie Mae, Freddie Mac, WaMu), and put in solid corporates like Xerox and UPS. And … Continue reading →

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Information Overload Datapoint of the Day

Posted on October 10, 2008 by Felix

The Dow swung 780 points between its low point and high point just in the first hour of trading this morning. This is a crazy market, and it’s overloading the information systems: here’s a screencap I took just now, from … Continue reading →

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Lehman CDS: It Won’t Be Over Today

Posted on October 10, 2008 by Felix

Vipal Monga today mentions something I was unaware of: the Lehman CDS auction today is not the end of the story when it comes to settling those trades. All it does is set the price: settlement doesn’t happen until October … Continue reading →

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The Guarantee Plan

Posted on October 10, 2008 by Felix

The bad news is that Hank Paulson seems to have run out of ideas. The good news is that, with no bright ideas of his own, he’s turning to the bright ideas of Gordon Brown: first direct equity injections into … Continue reading →

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Extra Credit, Thursday Edition

Posted on October 9, 2008 by Felix

Rescuing our jobs and savings: What G7/8 leaders can do to solve the global credit crisis: An all-star cast of authors with very timely advice. Probably never before in a financial crisis has so much first-rate advice been available so … Continue reading →

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The Unwinding of the Moral Hazard Trade

Posted on October 9, 2008 by Felix

This is the Age of the Bailout. And everybody knows how bailouts work: the government steps in and makes whole any holders of fixed income instruments, be they bonds or deposits or even subordinated debt. That’s what happened with Bear … Continue reading →

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What Just Happened?

Posted on October 9, 2008 by Felix

I’ve long said that end-of-day market reports are silly, since the only thing reporters can normally say with any confidence is "the market moved and we don’t know why". But what we’re seeing right now isn’t moves so much as … Continue reading →

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When Shipping Costs Plunge

Posted on October 9, 2008 by Felix

The Baltic Dry Index, which measures international shipping costs, was fixed today at 2,503, down 9% on the day and down 79% from its May high of 11,793. It’s a volatile index, and these levels are hardly unprecedented: the index … Continue reading →

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Should the Fed Target Libor?

Posted on October 9, 2008 by Felix

Many thanks to Colin Barr, who saw my question about how we can bring down Libor and pointed me to a recent essay by Edwin Truman with a very specific proposal about doing just that. Truman takes the very direct … Continue reading →

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The Last Days of Morgan Stanley

Posted on October 9, 2008 by Felix

If Morgan Stanley was in distress back in mid-September, it’s much worse today, trading as low as $12.50 a share: that’s just 40% of its stated book value. For all the denials coming out of the bank, clearly the market … Continue reading →

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Bank Soundness Datapoint of the Day

Posted on October 9, 2008 by Felix

This has got to sting, in New York and London: Canada has the world’s soundest banking system, closely followed by Sweden, Luxembourg and Australia, a survey by the World Economic Forum has found as financial crisis and bank failures shake … Continue reading →

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How Can We Bring Down Libor?

Posted on October 9, 2008 by Felix

When banks get nationalized, they become much safer, right? So what on earth is overnight Libor doing at 5.09%, and three-month Libor at 4.75%? The TED spread is a new record high, 413bp, making all its previous scary spikes look … Continue reading →

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Did Derivatives Cause the Crisis?

Posted on October 9, 2008 by Felix

While I’m reading the front page of the NYT, it’s worth noting the latest installment in its crisis series: 3,000 words from Peter Goodman on how Alan Greenspan’s lax oversight of the derivatives market got us all into this mess … Continue reading →

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US Bank Nationalizations: One Step Closer

Posted on October 9, 2008 by Felix

Yesterday, Justin Fox detected a possibly important shift in emphasis from Hank Paulson. Did anybody else notice that when Hank Paulson was describing in his press conference today what the Emergency Economic Stabilization Act enables Treasury to do, the first … Continue reading →

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Extra Credit, Thursday Morning Edition

Posted on October 9, 2008 by Felix

Emerging Europe seen key crisis flashpoint: or is it Bank Crisis Is Bypassing Central and East Europe? They report, you decide. CME Group and Citadel to Launch the First Integrated Credit Default Swaps Trading Platform and Central Counterparty Facility, Linked … Continue reading →

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Lies, Damn Lies, and Intellectual Property Statistics

Posted on October 8, 2008 by Felix

Welcome, Julian Sanchez, to the Alice-in-Wonderland world of trying to track down widely-cited statistics to their original source! I tried and failed with counterfeiting statistics; Julian has now tried and failed with estimates of lost jobs and money due to … Continue reading →

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Beware Small ETFs

Posted on October 8, 2008 by Felix

When I said this morning that "we’re only at the very beginning of the global sovereign (as opposed to financial) crisis" and that "there will be more government debt scares before this is all over", I was evidently thinking along … Continue reading →

Posted in investing | 1 Comment

Homeownership: The Ideal Which Refuses to Die

Posted on October 8, 2008 by Felix

Of all the Big Ideas which have been thoroughly discredited over the course of this crisis, arguably the biggest is the concept that homeownership is always and everywhere a Good Thing. As we’ve seen over the past couple of years, … Continue reading →

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Iceland’s Best-Laid Plan Falls Apart

Posted on October 8, 2008 by Felix

Here’s how fluid things are: last week, Iceland nationalized Glitnir, the country’s third-largest bank. Today, it unnationalized Glitnir, putting it into receivership instead: clearly the bank’s liabilities were too large for the Icelandic government to take on. Yesterday, Iceland pegged … Continue reading →

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The Sovereign Default Race Heats Up

Posted on October 8, 2008 by Felix

You thought Iceland was in dire straits? Maybe Pakistan will beat it to the first-to-default finish line! Pakistan’s economic crisis deepened on Monday after the rupee sank to an all-time low and Standard & Poor’s, the global rating agency, downgraded … Continue reading →

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Can the TARP Work?

Posted on October 8, 2008 by Felix

I’ve got a piece at the main Portfolio.com site today called "Rolling Out the TARP", going into a bit of detail about whether and how this whole reverse-auction thing might work in practice. It’s based largely on a paper by … Continue reading →

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TED Breaks 400bp

Posted on October 8, 2008 by Felix

So much for unprecedented global coordinated rate cuts, not to mention a UK bank bailout which could reach a mind-boggling 500 billion pounds. TED’s at 403bp, European stocks are sharply lower across the board, and the US stock market, after … Continue reading →

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Extra Credit, Tuesday Edition

Posted on October 8, 2008 by Felix

How to handle the crisis in your 401K: Good advice from Megan. If you have long-term investments (and all stock-market investments should be long-term investments) then mark them to market no more than once a year. Never Enough Lessons on … Continue reading →

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