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How to tackle foreclosures and unemployment at the same time: Get some desperately-needed empirical data on loan mods.
Doing the Math to Find the Good Jobs: Mathematicians have the top three best jobs. Economists are in 11th place, just ahead of philosophers.
Preach What You Plan To Practice: "You can get better results from using hypocrisy than any other technique."
Choice of audit firm: "Ernst and Young, KPMG and PWC all have a reasonable chance of failing as a result of auditing Madoff feeder funds."
.I was talking about quant funds this afternoon, and got to wondering what on earth they're doing these days, given that their m.o., up until say the summer of 2007, was to find trading ideas, backtest them, try them out in real life for a while, and then pull the trigger and actually trade on them.
The question then becomes: what now? When you backtest, do you backtest through the quant blow-up of 2007 and the stock-market meltdown of 2008? If so, do you really think that's going to give you the kind of trading idea which will make money going forwards? And if not, then what do you ignore, and why do you ignore it, and what makes you think you won't run into a third period of high volatility which will lie well outside any reasonable assumptions you might make?
... ContinueHow low can recovery rates go? Today the CDS auction on Tribune's defaulted bonds settled at 1.5 cents on the dollar, which is low but in line with expectations of bondholders essentially getting nothing once the secured creditors have been paid.
Much more startling is the price on the senior secured loans: just 23.75 cents on the dollar. I checked in with Nishul Saperia at Markit, and he said that it was the lowest recovery rate he'd ever seen for a secured loan; historically, such debt would recover at 70 to 90 cents on the dollar if it ever defaulted.
... ContinueI've been catching up on the art blogs this slow news day, which means catching up on a long and sometimes confusing debate about deaccessioning which was sparked by the sale of two paintings by New York's National Academy. Ground zero for this debate is Donn Zaretsky's Art Law Blog, but a lot of big names have been drawn in, including David Ross, the former director of both the Whitney and SF MoMA, who has been commenting chez Richard Lacayo.
... ContinueMichael Kaiser makes some good arguments in favor of increased arts funding, but unfortunately he mixes them up with bad ones, and he glosses over the best ones. The result is that Tyler Cowen gets to take the moral high ground by saying that "culture for the rich" is "not a priority".
In reality, however, arts funding is a great way of spending any stimulus money, as anybody with a pocket calculator to hand might be able to work out from a couple of the numbers in Kaiser's piece:
... ContinueEric Falkenstein sums up 2008 through a ratings-agency lens:
I think 2008's problem was mainly because after the rating agencies were exposed as making an error on their AAA and AA ratings, all investors viewed such securities skeptically. What was previously an asset class that did not require much thought, now need re-underwriting: evaluating the credit from the bottom up. This is very difficult, invariably there are many assumptions (especially for derivatives), and you find very quickly that there are lots of unknowns that are potentially dangerous. Usually, these assumptions are benign, but as the mortgage crisis proved, you can't rest on 'usually'.
I very much like the term "re-underwriting"; I think it's a good way to think more generally about what happens after that other buzzword, deleveraging.
... ContinueThe myth of the riskometer: "The lessons have not been learned. Risk sensitivity is expected to play a key role both in the future regulatory system and new areas such as executive compensation."
Fighting Off Depression: Krugman warns that "this looks an awful lot like the beginning of a second Great Depression".
Renaissance Waives Fees on Fund That Gave Up 12%: I guess no one there really needs the money.
Hyperinflation & Powers of Ten: A monetary history of Argentina, in banknotes.
.Bloomberg has a great headline this morning:
Banks' 'Catatonic Fear' Means Consumers Don't Get TARP Relief
While it does have a little bit of on-the-other-hand, the thrust of the story is strong and clear: we're trying to kick-start bank lending by throwing money at the financial system, and it's not working. And the names lined up to push this thesis are big ones, including Alan Blinder, who provided the "catatonic fear" quote which got promoted into the headline.
... ContinueIs Waterford Wedgwood luxury, or "masstige"? Either way, it's bust. Its $625 million in debt is essentially worthless, it's been losing money before interest payments for a couple of years now, and its prospects, as we enter another grim year for the retail market, have never been poorer.
... ContinueKara Scannell has been looking at the SEC's Madoff memos:
... ContinueThe 2005 review and Mr. Markopolos's report prompted the SEC to open an enforcement case, a notch more serious in the SEC's world than the previous examination. "The staff is trying to ascertain whether" the allegation that Mr. Madoff "is operating a Ponzi scheme has any factual basis," according to the SEC case memo...
"The staff found no evidence of fraud," according to the SEC case memo.
Remember those furtive seller's rebates from auction houses? Georgina Adam says that in at least one instance they might have risen to include the entire buyer's premium:
... ContinueIn some cases the whole of the buyer's premium was given to the seller, as well as the vendor's premium being waived entirely. This is believed to be the arrangement David Rockefeller made with Sotheby's when he sold Mark Rothko's 1950 "White Center (Yellow, Pink and Lavender on Rose)" for $72.8m (£36.7m) in May last year.
The End of the Financial World as We Know It: Part 1, Part 2. Lewis and Einhorn are right; it'll be interesting to see whether Tim Geithner moves in the direction they suggest.
Risk Mismanagement: Nocera on VaR.
A second tulip mania: The contemporary-art bubble. "As Kindleberger has shown, it is a condition of a speculative mania that new 'assets' be manufactured to meet raging demand—so the recent bubble has focused on the works of living artists such as Hirst, Koons, Prince and Murakami" who produce work in bulk.
Responses to Questions of the First Report of the Congressional Oversight Panel for Economic Stabilization: Kashkari gives pro-forma replies to Elizabeth Warren, rather than really engaging with the substance of her report.
Credit Card Companies Willing to Deal Over Debt: Another for the schadenfreude files. "Landmark changes to bankruptcy legislation passed in 2005, for which the industry aggressively lobbied, seem to have hurt card debt collections."
Housing Prices vs. Wildfire Acreage in U.S.: An correlation with a colorable case for causation.
High Concept/Alan Partridge: ER: The Finance Department.
.Robert Frank is quite certain about executive pay:
... ContinueWhy not limit executive pay? The problem is that although every company wants a talented chief executive, there are only so many to go around. Relative salaries guide job choices...
If C.E.O. pay were capped and pay for other jobs was not, the most talented potential managers would be more likely to become lawyers or hedge fund operators...
The market-determined salary of a job generally offers the best -- if imperfect -- measure of its importance.
The comfort you get from a triple-A rating is like the comfort you get from locking three car doors.
(Thanks to CaptainJJack for the inspiration)
.There's something quite elegant about Ecuador's proposed bond auction. It's not doing a typical old-bonds-for-new-bonds exchange, which no one would tender into. And it's not trying to buy up its debt in the secondary market, where it could be picked off by mercenary Wall Street trading desks. Instead:
... ContinueThe South American country will seek to repurchase the 2012 and 2030 bonds, which were issued as part of a 2000 debt restructuring, in a series of auctions, [Economy minister Diego] Borja said. He said the government will lower the price it offers with each subsequent auction. He declined to specify at what price the buybacks will start.