Sometimes, financial innovations seem like a good idea at the time, and it’s only later, after everything has gone pear-shaped, that it becomes clear we would have been much better off without them. Other times, financial innovations are clearly a bad idea from the get-go:
On February 14, 2008, John Lyons, the examiner in charge of large bank supervision at the OCC, sent Citigroup and its auditors a scorcher of a valentine. In a nutshell, it said that Citigroup had no idea what it owned and had no idea how to value it. “Risk management had insufficient authority,” it said, the board “had no effective oversight role,” and “matters requiring attention” ranged from corporate governance and risk management in general and CDO valuation in particular.
At the end of 2008, the loan market was in stunningly bad shape. There was almost no bid for loans in general, and cov-lite leveraged loans in particular were treated like they were radioactive. If you looked at the prices they were trading at, the market was clearly expecting a huge wave of defaults in the very near future, along with very low recoveries.
Back in November, Michael Barr told me that by the end of the first quarter this year, the government should be in serious discussions with banks about how they’re going to fix their broken mortgage operations. Those discussions seem to have started up, on an informal basis, as the government has cobbled together a not-quite-ready-for-prime-time settlement proposal which it will at some point formally present to the banks.
Russell Carollo, of Mark Cuban’s JunketSleuth, has a great post up today about the way in which the FDIC aggressively rebuffs FOIA requests that other government agencies are happy to comply with. The FDIC has long been a hugely powerful and unaccountable arm of the government, and its letters to Carollo stink of arrogance and entitlement.
Deutsche Bank’s algos go rogue in Korea — Bloomberg
In which Robert Macmillan agrees with me on market reporting — Reuters
Wall Street profits totaled $27.6 billion in 2010, second only to 2009 — NYS
Which “senior Obama Administration officials” will be visiting SXSW on Mar 12? And who’s invited? — SBA
Playboy has long mixed its girlie pics with serious journalism, but it’s not always obvious why. Take the December 2010 issue, for instance. It includes a fantastic investigative piece on vulture funds by Aram Roston, which isn’t advertised on the cover and which wasn’t placed online either until I found out about it a few days ago and started nudging them.
Comment of the day comes from TFF:
When asset prices go up, you are poorer.
When asset prices go down, you are richer.
That equation holds true as long as you are in the accumulation phase of your life. It reverses in retirement, and is perhaps ambiguous for somebody nearing retirement, but for somebody in their 20s, 30s, and 40s, it is undeniably true.