Author Archives: requiem

When Credit Derivatives Go Bad

Posted on by
Reply

Wow… This past week has been full of exciting news. Some smart cookie has finally realized that maybe it would be worth revisiting the credit ratings of bond insurers. (At this point, I sincerely hope that no-one reading this is foolish enough to have given any credence to those ratings.) M-LEC, a sort of financial Superfund site, appears dead at birth, and FASB’s rule 157 will soon take effect to force more mark-to-market of dubiously-valued assets. Citigroup, just like Merrill Lynch a few weeks before, tossed its CEO and wrote down ~$11 billion in assets.

While I’d love to rant about the abomination that was M-LEC, I’m going to instead provide a quick introduction to two phrases: “counterparty default” and “acceleration event”. I think we’ll be seeing much more of them in news articles over the coming months.
Continue reading →

October Wrap-up

Posted on by
Reply

On this high holiday I have some minor links and musings to present.

First, from Reason magazine, Ronald Bailey in “Our Intangible Riches” interviews World Bank economist Kirk Hamilton about his team’s investigation into wealth and capital. The team’s results are published in Where is the Wealth of Nations?, available from the World Bank site. In short, the wealth of nations lies primarily in intangible capital; the education of the populace and the quality of social institutions.

~

Observations suggest inflation pressures on the working classes continue to grow. Consumer staples giants Procter & Gamble, Kimberly-Clark, and Colgate-Palmolive have all announced the need to pass along price increases in oil and raw materials. Consumers should expect to see prices increase from 3-12%. Health, education, and childcare costs also continue to rise. Low official inflation numbers also permitted the Fed to slip another knife into an already wounded dollar.

~

I finished reading Iain Bank’s The Algebraist the other week. It’s not a Culture novel, though still quite fun. I also picked up a copy of Sandworms of Dune, the conclusion to Frank Herbert’s famous cycle. As expected, only in the treatment of Duncan Idaho is Frank Herbert’s touch clearly visible. The writing style was pedestrian and the story had all the subtlety and depth of a Michael Bay film.

~

Finally, we had a small earthquake yesterday. Nice rolling waves, almost like being on a boat.

Haiku

Posted on by
Reply

A colleague, starting her masters program, takes unexpected leave. It’s the latest leave-taking; it seems so many have left this season. I’ve found a program I like, I can almost imagine how that announcement will be taken.

Seeing people off,
being seen off–
autumn in Kiso.

Is it no surprise I find myself reading Basho?

Spigots

Posted on by
Reply

I’ve now heard from two sources that mortgage lending in the SF Bay area is effectively dead. As the second put it:

Jumbo loan processing in the Bay Area, as far as they know, is completely halted. 20% down will NOT make the cut. It is more like 50% down and FICO score of above 750 plus full doc, and the bank may still think about it.

– OO, on Patrick.Net

Now that that spigot has been tightened down, there still remains the question of how to clean up after the excesses of the past few years. This morning’s sudden news of a cut in the discount rate has been taken by many as a sign of capitulation by the Fed, as were its repo operations the week prior. I think this conclusion is premature.
Continue reading →

Bare Sterns

Posted on by
Reply

Introduction & Recent News

“Only when the tide goes out do you discover who’s been swimming naked.”
— Warren Buffett

This post is on recent developments in the finance world. I’ll start things off with a small chart, courtesy of Credit Suisse, then explain its connection to imploding hedge funds.

Credit Suisse 2007 ARM reset schedule

Continue reading →