The IRA Analyst Sun 2009-12-13 09:11 EST
To us, the confirmation hearings last week before the Senate Banking Committee only reaffirm in our minds that Ben Bernanke does not deserve a second term as Chairman of the Board of Governors of the Federal Reserve System.
AIG; BAC/TARP; Ben Bernanke; Goldman Sachs; IRA Analyst; striking.
The IRA Analyst Thu 2009-10-22 19:59 EDT
...large flows of fiat paper dollars, I submit, explain the increasingly manic behavior of markets, investors and large banks over the past decade as true investment opportunities are increasingly outnumbered by speculation...
alliance; Congress; convenience; Fed; IRA Analyst; Primary Dealers.
The IRA Analyst Mon 2009-09-21 17:23 EDT
...before Treasury Secretary Tim Geithner and the other G-20 finance ministers set about to raise capital levels, they need to understand that the earnings of the banking industry are going to be impaired for years as the cost of resolving failed banks is repaid. Restoring solvency is the first issue for many banks, then we can talk about increased capital and restrictions on risk taking equally. And as the banking industry shrinks defensively in order to conserve capital and fund liabilities impaired by realized losses, the credit available to the US economy also shrinks. You can't have economic growth without credit growth...Bottom line is that deflation is still the chief threat to the US economy, driven by a relentless contraction in bank and nonbank credit. Until we see a restoration of the market for nonbank finance and a sustained turn in the EAD of the large bank peer group, which accounts for almost 70% of the entire US industry balance sheet, we do not believe that any economic recovery will be meaningful in terms of jobs or asset prices.
The IRA Analyst Thu 2009-09-17 10:22 EDT
To get some further insight into the world of securitization and cash flows, we spoke last week to Ann Rutledge of RR Consulting...The difference between a futures contract for T-bonds and a credit default swap is that the former is a real contract for a real deliverable, whereas the CDS trades against what people think is the cash basis, but there is no cash market price to discipline and validate that derivative market. Rutledge: a contract or structure without a cash basis should not be allowed at all. You cannot have a derivative that is honest and fair to all market participants without a true cash basis. ...derivatives markets such as CDS and CDOs that have no cash basis tend to magnify speculative excesses, while derivative markets where there is a visible cash basis market to discipline investor behavior seem less unstable in terms of systemic risk. Rutledge: If the cash market were visible and could be examined by all participants, then it would give away the ability of the dealer banks to tax participants in the market and extract these abnormal returns. So how do we fix the problem... Rutledge: These originators play this game over and over again and they don't get caught, in part because we do not have a common, standardized set of definitions for governing the most basic aspects of the securitization process. The buyers don't do the work and the accounting framework is a counterparty-oriented framework, not one that is focused on the underlying assets. So banks like Countrywide and WaMu originated and sold some truly hideous structures during the bubble, but the buyers only diligence was reliance upon recourse to these banks. It costs maybe 50bp for a buyer to get the data and grind the numbers to really diligence a securitization based on cash flows, even a complex CDO. But the cost to the buyer and the system of not doing the diligence is an order or magnitude bigger. If the Congress, the SEC and the FASB, and the financial regulators only do one thing this year when it comes to reforming the world of structured credit, then it should be to impose by law and regulation common standards for the definitions used in the marketplace.
Ann Rutledge; basis; interview; IRA Analyst; securitizations; structured credit.
The IRA Analyst Sun 2009-09-13 12:14 EDT
...we have now many examples where a model or the pretense of a model was used as a vehicle for creating risk and hiding it. More important, however, is the role of financial models for creating opportunities for deliberate acts of securities fraud..the widespread use of [VaR] statistical models for risk management suggest that financial institutions are subject to occasional "Black Swans" in the form of risk events that cannot be anticipated...We don't actually believe there is such a thing as a "Black Swan."...leaders in finance and politics simply made the mistake of, again, believing in what were in fact flawed models...Or worse, our leaders in Washington and on Wall Street decided to be short sighted and not care about the inevitable debacle...We need to simply ensure that all of the financial instruments in our marketplace have an objective basis, including a visible, cash basis market that is visible to all market participants. If investors cannot price a security without reference to subjective models, then the security should be banned from the US markets as a matter of law and regulation. To do otherwise is to adopt deception as the public policy goal of the US when it comes to financial markets regulation.
House testimony; IRA Analyst; models starting; subject; Troubles.
The IRA Analyst Tue 2009-09-01 19:21 EDT
...the Fed and Treasury spent all the available liquidity propping up Wall Street's toxic asset waste pile and the banks that created it, so now Main Street employers and private investors, and the relatively smaller banks that support them both, must go begging for capital and liquidity in a market where government is the only player left
IRA Analyst; Q2 2009 Bank Stress Test Results; Zombie Dance Party Rocks.
The IRA Analyst Wed 2009-08-26 15:50 EDT
The surprise facing Geithner, Bernanke et al is that by Q3, the true economic deterioration in many toxic assets will be clear for all to see. ``whatever relief that financial institutions and other residents of the hold-to-maturity world believe that they will receive through the modification of fair-value accounting and other official dispensation, they will lose through deteriorating economic fundamentals and falling cash flows supporting these assets as 2009 unfolds.''
The IRA Analyst Thu 2009-07-30 00:00 EDT
-- he Masters of the Universe who run the largest Wall Street firms of have learned not a thing when it comes to credit default swaps ("CDS") and other types of high-risk financial engineering. Indeed, not only are the largest derivative dealers fighting efforts to reform the CDS and other derivative instruments that caused the AIG fiasco, but regulators like the Federal Reserve Board and US Treasury are working with the banks to ensure that a small group of dealers increase their monopoly over the business of over-the-counter ("OTC") derivatives.''
Institutional Risk Analyst; IRA Analyst; Kabuki; OTC derivative; Potomac; Reforming Credit Default Swaps.
The IRA Analyst Fri 2009-07-24 00:00 EDT
``Washington has indeed fixed the solvency problems of the large zombie banks...by turning them into GSEs via FDIC guarantees on their debt.''
bank; Institutional Risk Analyst; IRA Analyst; longer; Mortgage Duration Risk; problem.
The IRA Analyst Tue 2009-06-16 00:00 EDT
``This zombie dance party ain't over. No sir.'' Michael Pento: ``Bernanke will be hard-pressed to substantially raise rates to combat inflation once consumer and wholesale prices begin to significantly increase.''
Bernanke's Permanently Expanded Balance Sheet; Institutional Risk Analyst; IRA Analyst; Pento; Zombie Update.
The IRA Analyst Thu 2009-06-11 00:00 EDT
Credit Default Swaps and Too Big to Fail or Unwind: Interview With Ed Kane; ``The whole basis of policy making in Washington today is that the taxpayer is a sucker who does not know how to defend him or her self against this kind of regulatory gambling.''
big; Credit Default Swap; Ed Kane; fail; Institutional Risk Analyst; interview; IRA Analyst; unwinds.
The IRA Analyst Tue 2009-04-21 00:00 EDT
2009-03-13; ``The Bernanke/Geithner approach to not dealing with the financial crisis amounts to a hideous public subsidy of the global transactional class, a transfer of wealth from American taxpayers to the institutional investors who hold the bonds and derivative obligations tied to the zombie banks, AIG and the GSEs. All of these companies will require continuing cash subsidies if they are not resolved in bankruptcy.''
bank; big; fail; Institutional Risk Analyst; IRA Analyst; Stress Test Zombies; Tough Tootsies.
