Felix Salmon

Why We Still Need Securitization

The NYT’s op-ed page is positively infested by econobloggers today: there’s not only myself, but also a certain Princeton economics professor whose blog you might have noticed. His column today echoes the big Simon Johnson essay in the Atlantic, bemoaning the decades-long rise in the power of the financial sector, which still seems to have US governments both red and blue entirely captive:

Unhelpful Metaphor of the Day, Poker Edition

Here’s how Gerald Seib leads his WSJ column today:

In poker, there’s a maneuver called "all-in," in which a player pushes all his chips to the center of the table in one big bet.
By that standard, President Barack Obama is conducting an all-in presidency.

Raising Citi’s Kimono

I love this chart, from The Big Money:

Citi-pie_1.jpg

The good news, of course, is that it’s not just the Legacy Assets which are rising in value — the Unlimited Metrocards are, too! A few more fare hikes, and Citi will surely be solvent again.

What Should Be Happening to Toxic Bond Prices?

Consider three assets. Asset A is a basket of subprime mortgage-backed bonds, sitting on the balance sheet of JP Morgan Chase. Asset B is an identical basket of subprime mortgage-backed bonds, being traded in the secondary market. And Asset C is a credit default swap written on that basket of subprime mortgage-backed bonds.
The Geithner bank bailout plan is released. What would you expect to happen to the prices of Asset B and Asset C?
If you’re Krishna Guha of the Financial Times, you’d reason something along these lines: Thanks to the availability of cheap government funding to buy it, Asset A will rise in price. Since Asset B is identical to Asset A, then Asset B will rise in price too. And since the spreads on Assets A and B have both tightened, then the spreads on a CDS written on that asset must be tightening too, thanks to the CDS-cash arbitrage. So expect the CDS spread to narrow, just as the yield on Assets A and B has fallen.
Well, guess what. If you look at the market, Asset B has not risen in price, and the spread on Asset C has not tightened. And Krishna Guha is worried:

Extra Credit, Thursday Edition

How to Conjure Up $500 Billion: I have an op-ed in Friday’s NYT on the political realities surrounding the bank bailout, and the way in which the FDIC is the big winner here.

Ponzi Update

Remember Millennium Bank, the Ponzi scheme in St Vincent & the Grenadines? Well, the SEC has finally noticed it, which means that non-bloggers can now accuse it of being a Ponzi too.

Geithner’s Brave New Regulatory World: An IMterview

Portfolio.com’s Megan Barnett asked me a few questions this morning about Tim Geithner’s plans for America’s financial sector:

The FDIC’s Brand New Job

Steve Waldman puts his finger on the mission-creep problem at the FDIC:

It’s as if an insurance company that ordinarily refuses to cover homes in hurricane states suddenly offered policies only to purchasers looking to build homes on Gulf-coast barrier islands.

Citi’s Michael Klein Gets $5.5 Million Retention Bonus on Departing

Does Citigroup’s tone-deafness know no bounds? Last week it was the $10 million office renovation; this week, it’s retention bonuses paid, AIG-style, even to people who are leaving: