Opinion

James Saft

Time for bank bond write-downs: James Saft

May 24, 2012 04:05 UTC

By James Saft

(Reuters) – After years of insulating risk-takers from the consequences of their decisions, maybe it’s finally time to try something else.

Europe’s current crisis, and specifically the death spiral some of its banks and peripheral sovereigns are locked into, may provide just such an opportunity. It may now be time to cross that red line and force some bank bondholders, even senior bondholders, to take losses.

Throughout the now five-year-old global financial crisis, writing down bank debt when banks are insolvent is a step that policy-makers have been almost universally unwilling to take.

Fearing a rolling line of bank failures if the weak were allowed to go down, policy-makers have generally followed the following three-point script:

First, make abundant liquidity available to banks, ensuring that they don’t fall over in a panic. The European Central Bank’s unlimited LTRO is the logical extension of this.

Greater fools in Facebook circular firing squad: James Saft

May 22, 2012 04:03 UTC

By James Saft

(Reuters) – The Facebook IPO, which started as a global search for a greater fool, developed on Monday into a circular firing squad.

Facebook’s newly minted stock tumbled well below its issue price on Monday, falling as much as 12 percent, as it struggled in its first day trading without the full support of its investment banking syndicate.

The problem, of course, is that too many buyers were playing the same game, looking to lay off their exposure quickly to some other patsy. As they say in Silicon Valley, this isn’t a bug, it’s a feature.

Chesapeake lessons: Don’t invest where you earn

May 17, 2012 19:37 UTC

By James Saft

(Reuters) – Like all massive risks, holding large amounts of stock in your employer is a way to make an investment home run, but an even better way to strike out.

The sad tale of Chesapeake Energy employees is a reminder of a series of oft taught but seldom learned lessons, namely that when you hold too much of your employer’s stock you imperil your retirement, impair your ability to manage risk and set yourself up for expensive, emotionally driven investment decisions.

A massive 38 percent of Chesapeake’s main 401(k) retirement plan’s assets were in company stock, despite only 5 percent of those assets still being tied up in a vesting period.

Only the ECB can make it a bank run: James Saft

May 17, 2012 12:03 UTC

By James Saft

(Reuters) – A spreading bank run could hasten Greece’s exit from the euro zone but it certainly doesn’t have to end that way.

It is far less clear what the impact would be should the wave of withdrawals accelerate in other peripheral states such as Spain or Portugal, which are further from outright revolt over German-led austerity, and which, due to their sheer size, will enjoy a vastly improved negotiating position.

Greeks have been withdrawing hundreds of millions of euros of deposits from their banks in recent days, driven by a rational but dangerously self-reinforcing fear that a Greek exit from the euro will leave them holding far less valuable new drachma.

JP Morgan, TBTF and ZIRP: James Saft

May 15, 2012 04:02 UTC

By James Saft

(Reuters) – JP Morgan Chase’s loss is the perhaps inevitable result of the interaction of two policies: too big to fail and zero interest rates.

JP Morgan lost $2 billion when trades put on by its chief investment office blew up, prompting a sell-off in its stock, an investigation by regulators and new calls to limit speculative activities by banks.

Too big to fail, the de facto insurance provided by the U.S. to financial institutions so big their failure would be disastrous, provides JP Morgan and its peers with a material advantage in funding and as counterparties. Depositors see it as an advantage, as do bondholders and other lenders. That leaves TBTF banks flush with cash.

Saft on wealth: Much ventured, little gained

May 10, 2012 16:34 UTC

By James Saft

(Reuters) – Venture capital investors put their money down with dreams of backing the next Facebook, but the reality involves high fees and much disappointment.

A new study by the Kauffman Foundation, an entrepreneurship charity and a heavy and long-time backer of venture capital, makes disturbing reading oo.gl/eAp9E, detailing 20 years of disappointment, a failure by venture capital firms to deliver and of the foundation itself to take the needed steps to protect its own interests.

Kauffman, which has $249 million in venture capital, is providing insights which, because of tight disclosure agreements, are almost impossible to obtain elsewhere.

SAFT ON WEALTH: Much ventured, little gained

May 10, 2012 16:32 UTC

May 10 (Reuters) – Venture capital investors put their money
down with dreams of backing the next Facebook, but the reality
involves high fees and much disappointment.

A new study by the Kauffman Foundation, an entrepreneurship
charity and a heavy and long-time backer of venture capital,
makes disturbing reading oo.gl/eAp9E, detailing 20 years of
disappointment, a failure by venture capital firms to deliver
and of the foundation itself to take the needed steps to protect
its own interests.

Kauffman, which has $249 million in venture capital, is
providing insights which, because of tight disclosure
agreements, are almost impossible to obtain elsewhere.

An ungovernable slump: James Saft

May 8, 2012 04:06 UTC

By James Saft

(Reuters) – Received wisdom on Europe’s electoral results is that the throw-the-bums-out events in France and Greece represent a vote against austerity.

Here’s another possibility: it is an anti-reality vote.

That’s not to say that policies of austerity are helpful; they are not, especially when they are, as in the euro zone, taken as a futile means to support unsustainable debts in the financial system.

Rather, the elections illustrate a truth which will vex whatever policies are enacted next in all of the economies which are struggling with high amounts of total debt, be it corporate, banking, government or household. No one, no electorate, reacts well to the policies put in place during times when living standards are grinding slowly lower. Voters, just like investors, endow the things they can control, like who is in office and what they are doing, with far more power and ability to turn the course of events than they probably possess.

Chesapeake and the executive pay sell signal

May 3, 2012 21:58 UTC

By James Saft

(Reuters) – As Chesapeake Energy Corp shows, fat executive compensation all too often comes twinned with lousy investor returns.

Shares of Chesapeake have tumbled in the last two weeks after revelations by Reuters of unusual and disturbing pay and other arrangements between the company and its CEO and founder Aubrey McClendon. McClendon borrowed up to $1.1 billion to fund private investments he was allowed to make in company oil and gas wells under its “Founder Well Participation Program,” a hilarious euphemism if ever there was one.

He also was, at least from 2004 to 2008, actively helping to manage a $200 million hedge fund that speculated in commodities his company produced.

UK’s economic cheese and debt pickle: James Saft

May 3, 2012 04:04 UTC

By James Saft

(Reuters) – Pity poor Britain: their own currency to depreciate, their own central bank to print and buy government debt, and yet here we have the second recession in three years.

Not only did GDP shrink by 0.2 percent in the first quarter – the second consecutive contraction, but a sickly manufacturing survey and a drop in exports both indicate that there is a risk of something more sustained and deeper.

And it’s not as if labor hasn’t been sharing the burden; unemployment is high and wage earners are taking home less in inflation-adjusted terms than they were in 2005. That leaves many British households struggling with debts which haven’t really shrunk and must be repaid while earning, effectively, less. Inflation is high, leaving even less for consumption, and households continue to show a preference for paying back money rather than borrowing.

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