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Category Archives: regulation
Goldman Sachs and the Regulatory Arbitrage Trade
Sam Jones has a great piece this morning on regulatory arbitrage under Basel II — which turns out to have been one of the big business lines of the doomed AIG Financial Products. Banks have to have a certain amount … Continue reading
Posted in banking, derivatives, insurance, regulation
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When Regulation Works
It’s rapidly become a cliché to describe the current crisis as one of a lack of regulatory oversight. But amidst all the recriminations about how the financial sector should have had much tougher regulation, there’s been precious little evidence that … Continue reading
Posted in banking, regulation
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How to Rescue a Bank
What’s the best way to rescue a failing bank? Bear Stearns got bought by JP Morgan with the help of a $29 billion Treasury backstop. Northern Rock was nationalized. Lehman Brothers was allowed to fail outright, enter bankruptcy, and eventually … Continue reading
Posted in bailouts, banking, regulation
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Another Knee-Jerk Proposal From Christopher Cox
I’m getting rather annoyed at Christopher Cox. His short-selling ban was a bad idea, but at least it got us through the weekend to a point at which a bailout plan could start taking shape. His work here is done; … Continue reading
Posted in derivatives, regulation
4 Comments
No More Investment Banks
If you had to point to one part of the financial markets which contributed the most systemic risk to the system, it would probably be the lightly-regulated investment banks. Not a problem any more: there aren’t any left!
Posted in banking, regulation
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Hank Paulson, Buy-Sider
The details of RTC II are emerging, and it’s pretty simple: give Hank Paulson $700 billion, let him buy up mortgage-related toxic waste, and thereby rescue the banks and save the global financial system. Henry Blodget asks one key question: … Continue reading
Posted in bonds and loans, Politics, regulation
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Lehman: A Victim of Necessary Unfairness
It was inevitable that we would see this sooner or later: From the perspective of a few days, the big mistake was letting Lehman go, without saving the creditors. Which is basically another way of saying: If the government bailed … Continue reading
Posted in regulation
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Convertibles: Collateral Damage of the Shorting Ban
It seems a long time ago now, but back at the beginning of the credit crisis, when US banks were being bailed out recapitalized by foreign governments rather than their own, one of their favorite methods of raising new capital … Continue reading
Posted in bonds and loans, regulation
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The Bumpy Ride Ahead
Dealbreaker has a most germane chart of what happened when Pakistan banned short selling: a brief and large rally, followed by a slow and devastating collapse. Could the same thing happen with the US stock market? Absolutely, yes. Banning short-selling … Continue reading
Posted in fiscal and monetary policy, regulation, stocks
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A World Without Shorts
The SEC has now implemented its short-selling ban: it’s on 799 financial stocks, which, interestingly, do not include XLF, the biggest ETF for financial stocks. In theory, if you wanted to short a given stock in the XLF basket, you … Continue reading
Posted in regulation, stocks
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When Regulators Panic
The range of regulatory responses to the current chaos in financial markets is instructive. The SEC bans naked short selling, the Russians just close down their markets altogether before announcing plans to spend $20 billion on stocks, and the FSA, … Continue reading
Posted in regulation
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Idiotic Idea of the Day, SEC Edition
So far, America’s technocrats have held up reasonably well in the face of the hurricane-force winds buffetting the world’s financial system. You can (and many do) quibble with some of the decisions made by Ben Bernanke, Tim Geithner, and Hank … Continue reading
Posted in regulation, stocks
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Was Sarah Palin at the Fed This Weekend?
This quote, from an anonymous Fed official, worries me: "We’ve re-established ‘moral hazard,’" said a person involved in the talks, referring to the notion that the government should eschew bailouts, since financial firms might take more risks if they’re insulated … Continue reading
Posted in regulation
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Fed Taking Equities as Collateral
Is the Fed accepting equities as collateral? Bloomberg says yes, the WSJ says yes, Reuters says yes. So, yes. But if that’s the case, why didn’t it say so? Here’s the relevant bit of the Fed statement: The collateral eligible … Continue reading
Posted in banking, regulation
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When Can We Start Breathing Again?
The Bank of America deal to buy Merrill Lynch is the first bit of unambiguously good news we’ve received all weekend. Of the four big independent investment banks, Lehman is toast; Morgan Stanley and Goldman Sachs are safe; and Merrill … Continue reading
Posted in banking, regulation
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How to Stop Stocks from Falling
Last month the Pakistani Small Investors Association made a "demand that all stock prices be frozen at current levels". Ask, it seems, and you shall receive: The Board of Directors of the Karachi Stock Exchange has decreed that although stock … Continue reading
Posted in regulation, stocks
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How Unregulated Interior Design Destroyed Contemporary Cinema
Alex Tabarrok takes aim at the American Society of Interior Designers: As Carpenter and Ross point out in an excellent article in Regulation from which I have drawn: In more than 30 years of advocating for regulation, the ASID and … Continue reading
Posted in regulation
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Bringing Back Regulation’s Good Name
Jesse Eisinger’s column this month is about the different regulatory structures in London and New York, and how they both failed. I asked him about it: Jesse, you travelled to London for your latest column, and came away with the … Continue reading
Posted in regulation
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The Short-Selling Ban: A Post-Mortem
Floyd Norris gets out his calculator this morning and crunches some numbers on short-selling and stock performance during the now-expired period when the SEC banned naked shorting of 19 financial stocks. As you might expect, there aren’t any obvious conclusions. … Continue reading
Posted in regulation, stocks
3 Comments
Regulate All Lenders
George Soros lays out his plan for fixing the US mortgage system in the FT today: essentially, it’s a Demark-style covered-bond system which imposes extremely rigorous regulation and homogenization on all mortgage lenders. Under his preferred system, says Soros, "loan-to-value … Continue reading
Posted in regulation
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Did Reg FD Have Unintended Consequences?
Heidi Moore has an interesting interview with Vanderbilt professor Robert Whaley, who claims to have found some nasty unintended consequences to the SEC’s Regulation Fair Disclosure, which tried to ensure investors were on a level playing field with respect to … Continue reading
Posted in economics, regulation, stocks
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The Upside of Moral Hazard
Bob Van Order, a former chief economist of Freddie Mac, has a long and sensible piece describing what Fannie and Freddie are good for, and examining the problems they’re currently facing. Along the way, he talks a bit about the … Continue reading
Posted in banking, economics, regulation
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The SEC Panics
I think it was about the time that the SEC started trying to curtail short selling that I finally decided that we’re in panic mode. The market’s actually flat, as I write this, although Fannie and Freddie are down 20%, … Continue reading
Posted in banking, regulation, stocks
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Geithner’s Plan to Revamp Global Financial Regulation
Tim Geithner has an important article in the FT today, headlined "We can reduce risk in the financial system". He’s entirely right, and his proposals are entirely sensible. Geithner was one of many regulators who warned about the credit bubble … Continue reading
Posted in regulation
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Let Them Eat Bear
Now that’s what I call a power lunch: Federal Reserve Chairman Ben S. Bernanke lunched on March 11 with a Who’s Who of Wall Street leaders, including JPMorgan Chase & Co.’s Jamie Dimon, three days before the central bank rescued … Continue reading
Posted in banking, fiscal and monetary policy, regulation
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