Monthly Archives: January 2009

What Makes a Bank Too Big to Fail?

David, one of my readers, writes in with a question: I’m curious about what actually makes a bank too big to fail. My guess is that it is because they are counter-parties to many deals, but would something like a … Continue reading

Posted in banking | 1 Comment

Wall Street Monoculture

There were many causes of the financial crisis, but Anil Dash brings up a new one: There’s a related question here which no one is asking, which is whether the economic catastrophe facing the global marketplace is a result of … Continue reading

Posted in banking, race | 1 Comment

Sorkin Exonerates Fuld

Andrew Ross Sorkin today has the most astonishing parenthetical I’ve seen in a long while: (By the way, doesn’t it seem increasingly hard to vilify Richard S. Fuld Jr., the former chief executive of Lehman Brothers, given what’s happened since … Continue reading

Posted in banking, Media | 1 Comment

How the New York Times Can Thrive Without Profits

Tunku Varadarajan says that newspapers are indeed businesses, and says that "the media business is just as vulnerable to the pressures of impatient capital as are other sorts of business". I’m not sure if that’s true, actually: it seems to … Continue reading

Posted in Media | 1 Comment

Blogonomics: Nick Denton, Value Investor

Is Nick Denton going shopping? It certainly seems that way: he tells Fishbowl NY that "there are a couple of struggling properties that we’re looking at". How could Denton be looking to buy up new web properties even as he’s … Continue reading

Posted in blogonomics | 1 Comment

Wine Tasting Datapoint of the Day

Robert Hodgson has a paper out entitled "An Examination of Judge Reliability at a major U.S. Wine Competition". He had the ingenious idea of serving up three identical glasses of wine — poured from the same bottle — to groups … Continue reading

Posted in consumption | 1 Comment

Extra Credit, Monday Edition

Everything You Wanted to Know about Credit Default Swaps–but Were Never Told: A long overdue piece. Aid Watch: Bill Easterly’s new blog. Another View: A More Radical Plan for Bank Stability: Peter Solomon’s plan sounds like nationalization, even if he … Continue reading

Posted in remainders | 1 Comment

John Thain and the CDS Basis Trade

John Thain seems to think that the CDS basis trade was at least partly responsible for Merrill Lynch’s $15 billion loss last quarter. This from the transcript of his interview with Maria Bartiromo: Cash assets completely separated from their derivatives. … Continue reading

Posted in derivatives | 1 Comment

Chart of the Day: The CDS-Bond Basis

Many thanks to JP Morgan, which sent me the data for the above chart, which shows the CDS-bond basis for BBB-rated debt. In English, that means it’s the number you get when you take the CDS spread on BBB-rated credits … Continue reading

Posted in derivatives | 1 Comment

Should we Relax Capital Requirements?

Jim Surowiecki wants the Obama administration to formally relax capital requirements for banks; Ricardo Caballero wants them relaxed all the way to zero, which seems to me to be a form of nationalizing banks without taking any upside, a worst-of-both-worlds … Continue reading

Posted in banking | 1 Comment

The WSJ Rewrites History

Fancy some time travel? Go back to my blog entry about John Thain from January 22, and click on the first link. I promise I haven’t edited it. Amazingly, despite the fact that I was linking to a story on … Continue reading

Posted in Media | 1 Comment

Boring Banker Syndrome

I have a piece up on the future of Wall Street in the "dual perspectives" area of; Sam Gustin gives the techy perspective for My feeling is that Wall Street is going to become a lot more boring … Continue reading

Posted in banking | 1 Comment

Mortgage Payment Datapoint of the Day

What happens to home prices when mortgage rates fall sharply? The median home price was $175,400 in December, down 15.3% from $207,000 in December 2007. The median price in November this year was $180,300… The average 30-year mortgage rate was … Continue reading

Posted in housing | 1 Comment

Partial Defaults

Can we please stop using the term "partial default"? It annoys me, mainly because nobody has a clue what it means. Jean Pisani-Ferry, for instance, on the subject of Greece, talks about "a vicious circle in which its debt would … Continue reading

Posted in bonds and loans | 1 Comment

Annals of Central Bank Transparency, Federal Reserve Edition

John Lanchester reviews Liaquat Ahamed’s Lords of Finance: America’s first modern central bank was established in 1913, in the teeth of strong populist suspicion of bankers. The men who conceived it were worried about the perception that they were forming … Continue reading

Posted in fiscal and monetary policy | 1 Comment

Extra Credit, Monday Morning Edition

Nationalization Gets a New, Serious Look: The nationalization debate makes it onto the front page of the NYT. Broader point about Geithner, Obama, China, and "manipulation": Fallows wants the Obama administration to be grown-up about China. Bill Ackman No Longer … Continue reading

Posted in remainders | 1 Comment

CDS Demonization Watch, Gretchen Morgenson Edition

In the wake of making my proposal below (which I’m entirely serious about, by the way), I’m forced to agree with Gretchen Morgenson about this: Credit-default swaps clearly played a role in this debacle, and it is crucial that they … Continue reading

Posted in derivatives | 1 Comment

How to Resolve the CDS Basis Trade Blowup

Tyler at Zero Hedge has a wonderful post on the CDS basis trade today, which is a must-read for anybody who’s interested in what happened to the CDS basis in the fourth quarter of last year or how Merrill Lynch … Continue reading

Posted in derivatives | 6 Comments

Ben Stein Watch: January 25, 2009

Ben Stein devotes his latest column to the subject of profligacy. It’s a subject he knows a lot about: he has filled previous columns with paeans to expense-account temples like Morton’s and Mr Chow, and he regularly talks lovingly about … Continue reading

Posted in ben stein watch | 1 Comment

Extra Credit, Saturday Edition

Obama and the Teßø on Men, and Other Short Stories. Part 1: Some whip-smart observations from Jeremy Grantham. George W. Bush Administration White House Web Site: For all those links which don’t work any more. Basic Stimulus Arithmetic: "We … Continue reading

Posted in remainders | 1 Comment

Did Merrill’s Trading Desk Blow Up in Q4?

One of the big unanswered questions surrounding the fourth-quarter collapse of Merrill Lynch is how, exactly, it contrived to lose $15 billion in December. The general suspicion in the blogosphere is that it was all a function of marking to … Continue reading

Posted in banking | 8 Comments

Phil Gramm’s U-Turn

Phil Gramm, November 2008: “There is this idea afloat that if you had more regulation you would have fewer mistakes,” he said. “I don’t see any evidence in our history or anybody else’s to substantiate it.” He added, “The markets … Continue reading

Posted in economics, fiscal and monetary policy, regulation | 1 Comment

The Peaknik Diaspora

Ben McGrath had a long piece called "The Dystopians" in the soon-to-come-off-newstands January 26 issue of the New Yorker, which is hidden behind a subcription firewall. Since you probably didn’t read all ten pages of it, I’ll share my favorite … Continue reading

Posted in eschatology | 1 Comment

Extra Credit, Friday Edition

Did the Swedes nationalize? What does that mean, anyway? What if the bank in question was already 77% owned by the state? How Some Firms Boost the Boss’s Pension: By using an artificially low discount rate designed for sums under … Continue reading

Posted in remainders | 1 Comment

Annals of CDS Demonization, Michael Lewis Edition

Michael Lewis has a grand theory about the CDS market: it was all one big mechanism for paying traders to take a whole bunch of tail risk which would eventually blow up all of Wall Street. You know, I have … Continue reading

Posted in derivatives | 1 Comment