Thursday, March 17, 2011

Fixing LIBOR

They are probing whether LIBOR is fixed.


That's kinda like asking whether the London gold fixing rate is a fixed rate...

Wednesday, February 23, 2011

Keeping score

Each economist has a "Q" and The Economist tried to sort it [pic link]:

Tuesday, February 22, 2011

The New Math of Modern Banking

46% of loans are non-performing. This is not "problematic", because ??

I guess because it is real-estate loans, or real-estate only. Or, it's the new math of banking.

Anyway, the bottom line: 100 billion euros is the size of the "workout" to be had in Spain, give or take X billion.

Have a nice day!

Thursday, February 17, 2011

Oh, Gentle Ben

You get "paid" the big bucks, you should take the big risks, political, economic, and otherwise, no?

A study of the programs suggests that the liquidity facilities generated $20 billion in interest and fee income between August 2007 and December 2009, or $13 billion
-NY Fed

See, to me, that means the Fed could and and should have taken credit risks, perhaps up to $13 billion worth, or even legal risks, perhaps up to $13 billion worth...

Wednesday, November 17, 2010

GM bailout looking okay


My back-of-the envelop calculation indicates that the taxpayers won't be made whole with the GM "bailout".

After the stock offering, I guesstimate about $35 billion left for treasury to collect from its common stock investment, but I could be wrong, because I don't have the prospectus. It's unlikely that amount of principal will be recouped in full, except over the extremely long term.

Taxpayers will be collecting between $200 and $300 million, potentially, in dividends, each year. That's a rate better than holding Treasury's own securities, no doubt.

In a favorable environment with an astute Treasury, the Government might limit its loss to $20 billion. In a cost-benefit, that has to be weighed against the lost tax revenue and benefits paid, including pension guarantees, due to massive unemployment that would have resulted had the company, its suppliers, and all its dealerships failed. From that perspective, it looks like a very wise move, wise "stimulus" spending.

From Barofsky, the special inspector general who is watching the numbers for us:

Regarding your question [Grassley] of how much Treasury needs to receive from the sale of GM stock in order to avoid a taxpayer loss on its investment, from December 31, 2008 through June 3, 2009 – bother before and during bankruptcy, Treasury provided $49.5 billion in loans to support the continued viability of GM. Treasury provided GM these loans under Treasury’s Auto Industry Financing Program. During bankruptcy, GM split into two independent companies: Motors Liquidation Company (“MLC”) and General Motors Company (“New GM”). MLC retained $1 billion of the $49.5 billion debt obligation from Treasury to cover wind-down costs, and transferred substantially all of its assets and its remaining $48.5 billion in Treasury loans to New GM. Also during bankruptcy, New GM signed an agreement with Treasury that converted the remaining $48.5 billion in debt into a $6.7 billion debt note, $2.1 billion in preferred stock, and a 60.8% stake in New GM’s common stock. The 60.8% stake amounts to 304,131,356 common shares.

Subsequent to emerging from bankruptcy, New GM retired the $6.7 billion in debt, leaving Treasury with $2.1 billion of referred stock and 60.8% of the common stock, which has a cost basis of $39.7 billion ($48.5 billion less $6.7 billion less $2.1 billion). In order for Treasury to recoup its common stock investment in the New GM and the $1 billion retained by MLC, New GM would need to receive an average of $133.78 per share, before giving effect to any stock splits that may occur. This figure does not include the underwriting, legal and other costs that Treasury will incur in connection with the IPO …

Tuesday, November 16, 2010

GM ups the size of IPO by 30%

Not that you might have predicted it from the last post, but GM has upped the size of its post-bailout offering by 30%, indicating that the talky-talk is good.


The size of the green shoe is enormous! Update: Not "enormous", just sizeable (I completely misread the note that there was another 550 million, when it is just 72).:

G.M. will now offer 478 million shares in the offering, which is expected to price between $32 to $33 a share, these people said. The company's underwriters also have the option - likely to be used - to expand the size of the offering to about 550 million shares. G.M. also expects to sell up to $4.4 billion worth of preferred shares.


Sunday, November 7, 2010

The biggest auto rally in history?

Will the new gas taxes kill the potential for the biggest rally in history?:

Wednesday, February 3, 2010

The Cost of the GM Realignment

All those dealerships that felt bitter because GM was forced, under government supervision, to cut them lose?

We sold out the nation's politics to them.

At least, so it would seem. Who knows the "true" judicial history of this radical break from a common wisdom that spans generations, this "Citizens United".

Tuesday, February 2, 2010

Invincible Wall Street - It Was an Act of God

After the traditional brokers' refrain, 'don't blame us, we're just the brokers - our clients did the risk taking', it appears that Goldman CEO Lloyd Blankfein was smacked down for suggesting that the problems were akin to an act of god.

“when Lloyd C. Blankfein, chief executive of the storied Wall Street firm Goldman Sachs, likened the financial crisis to the fluke of four hurricanes hitting the East Coast in a single year, Angelides shot back that the crisis was not caused by ‘acts of God.’ ‘These were acts of men and women,’ Angelides said. ‘These were controllable.’ ”
Blankfein's invincible compensation for the year is yet to be announced.

Separately, Hank Paulson is checking in (cashing in?) with his story, On the Brink:

"Banks were going down like flies," Mr Paulson told the FT.

Tuesday, June 2, 2009

The torch passes ...

It's true, in a way:

The American Century ends today with the death of General Motors as we knew it, the free-market engine that powered an economy and a culture to global preeminence, selling physical and social mobility to millions who had previously lived in small insular worlds.

-Robert Stein

Our self-confidence today is as it was at the peak. That strikes me as not well calibrated.

Is this just the end of the buggy whip? It doesn't seem so. All the new "whips" are made elsewhere and our accounts are not in good shape ...

Sunday, April 5, 2009

The Exceptional Case of Spain

Fast growth and "non-derivative banks" didn't keep them from poor investments in property.

The ugliness is getting worse.

Saturday, April 4, 2009

This Week In Markets History

It is announced, not from Buckingham Palace, but from Scotland Yard:

Scotland Yard lost £30m of taxpayers' money by reinvesting in a doomed Icelandic bank just weeks after withdrawing the cash on the advice of its financial expert, the Observer can reveal.

The Metropolitan Police Authority withdrew all investments from Landsbanki in April last year following instructions from its treasurer, Ken Hunt. But just weeks later, it reinvested with the bank without informing Hunt who remained in the dark until the bank was nationalised in October.

- Guardian

Thursday, April 2, 2009

Eternal Rebirth

This could fall into the category of Invincible Wall Street, but it has a tinge of fear-greed in it that is wholly different.

Apparently, the CEO whose board approved dividends well into the crisis (Merrill board approved payments up to the very last...), has the vision/visibility to say that recovery may take hold in 2009.

I'd put 3:1 odds that BOA will have a big-bath 4Q this year, at a minimum; but that's just me.

Wednesday, April 1, 2009

Hiding the Copula and Other Tales

Well, very late, I've read about the formula at the center of the storm.

It's supposed to have hidden risk. I'm looking at Chart 5 - does this hide risk? It doesn't look like it (although I'm not sure why it is not symmetric about zero or why the risk appears linear with changes in "correlation", off hand). I mean, the author is clearly showing a sensitivity to correlation.

The insight is a pretty straight-forward application of the properties of a Markov process. From what I can tell, the mathematics of modeling survival rates (hazard rates) did two things. It generalized the mathematical problem AND it allowed people to use different estimates/estimators for the model inputs. The latter may have been more critically important, because it's not at all clear how much information is in credit spreads to begin with, right?

Anyway, Paul Wilmott thinks Gaussian Copula is not robust, but Black-Scholes is. Off hand, it's not easy to see what they are after with that. Both have Gaussian assumptions. You might argue that covariances are more sensitive to leptokurtosis than, say, standard deviation estimates, or something; but, given the Wilmott-Taleb emphasis on outliers, you'd think they would welcome that (if it were true).