Well done to Matt Levine for finding — and explaining very clearly — the BIS’s special feature, by Ben Cohen, on the way in which the world’s banks have adjusted to higher capital requirements. Basically, the BIS, which sets the Basel capital requirements for the world’s banks, wanted to know how banks reacted when those capital requirements were raised.
There’s a fascinating heavyweight fight going on when it comes to writing what you might consider the official narrative of the financial crisis. The White House released its own 49-page report this morning, talking in glowing terms of the successes that the Obama Administration has made on the financial-reform front. Meanwhile, this week’s issue of Time magazine takes the opposite tack in a tough cover story by Rana Foroohar, headlined “How Wall Street Won”.
David Wessel has the scoop: Larry Summers has bowed to reality and is withdrawing from consideration as Fed chair. His last-minute attempt to distance himself from Citigroup was far too little, far too late: with Democratic opposition in the Senate only getting harder, it was at this point more likely than not that any Summers nomination would actually fail to get through Congress.
Mohamed El-Erian has a big-picture look at the bond market today, which leads off with a look back to where we were at the end of April. Back then, a diversified bond portfolio, as measured by the Barclays Aggregate index for the US, showed solid returns, between 3.6% and 6.0%, for every period between 1 year and 20 years. I’ve annotated El-Erian’s chart to show what has happened to those returns in the past 4 months: the numbers on the right are updated to today. As you can see, the 1-year return has fallen from 3.6% to -2.5% — a drop of more than 600 basis points — and all the other figures have fallen as well.
Hank Paulson had a good crisis. That’s why he’s getting hero-worship on the cover of Bloomberg Businessweek magazine; he is also pretty much the sole interviewee in a hagiographic 90-minute documentary, produced by Bloomberg, which is about to appear on Netflix. The combination is being promoted with the idea that “no one felt the impact” of the financial crisis more than Paulson, which is obviously false, but which also gives a pretty good idea of the whole project’s point of view. (The film never mentions, for instance, that Paulson received more than $500 million, tax free, for his Goldman Sachs stock when he sold it before moving to Treasury.)
Well done to Benjamin Lawsky, who is getting serious about the regulatory arbitrage which is endemic in the insurance industry — or, as he put it in a powerfully-worded letter yesterday, “the gamesmanship and abuses associated with the setting of reserves”.
The big financial news of the day is the Verizon bond issue, and Reuters (or rather our sister publication, IFR) is all over it. The most awesome aspect of the deal is its monstrous size: $49 billion, across eight different tranches, from three years out to 30. The biggest tranche, the 30-year, is $15 billion on its own, and priced at 265bp over Treasuries: that works out to a very tasty 6.5% yield. No wonder the deal was oversubscribed, and that the bonds have been tightening sharply in the secondary market.
I spent all of yesterday at a fascinating and wonky conference in London, on the economics and law of sovereign debt. I gave a short talk on the latest developments in Elliott vs Argentina (a/k/a NML vs Argentina), and specifically on the decision which was handed down by the Second Circuit court of appeals on August 23. These are the notes I drew up for the talk.
Matt Levine, newly arrived at Bloomberg View, has a very smart response to my post about those weird jumbo mortgage rates. Levine comes up with two reasons why jumbo rates might be lower than the rates on loans which can be sold to Frannie, and both of them are entirely plausible.