February 8, 2012

Yin/Yang at the Federal Reserve

March 22, 2010 By Jason Paez 3 Comments

Several months ago I supported Ben Bernanke when his re-nomination as Chairman of the Fed came under fire. While others such as Simon Johnson called for his removal, I wrote that I instead wanted to see more focus on systemic incentives. Put a bit differently, I believed we were being more reactive in our approach to the financial crisis than pragmatic about how thousands of mostly well-meaning citizens — both public and private — could have made such collective decisions as led to collapse.

This remains a key issue in need of attention, and it requires deep thinking about whether assumptions used to pass legislation over the past 40 years still hold.

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Filed Under: Featured Contributors, Monetary Policy, Politics, Regulatory Tagged With: , , , ,

Devil in the Details: Do Banks Really Need $221 Billion of New Capital?

February 17, 2010 By Jason Paez 3 Comments

Today’s NYT Dealbook headline reads (underlines added for emphasis):

Top banks will need an extra $221 billion of capital and see annual profits slump by $110 billion if all proposed regulations to reform the industry are brought in, leading analysts said on Wednesday, Reuters reported.

If all the initiatives from regulators are implemented it would cut the average return on equity to 5.4 percent from 13.3 percent next year, hurt economic growth and raise costs for bank services, JPMorgan analysts warned, according to the news service.

This is a preview of Devil in the Details: Do Banks Really Need $221 Billion of New Capital?. Read the full post (490 words, 1 image, estimated 1:58 mins reading time)
Filed Under: Banking, Crisis Capital, Featured Contributors, Markets, Regulatory Tagged With: , , , ,

Defusing “Financial Weapons of Mass Destruction”

February 15, 2010 By Jason Paez 2 Comments

In 2002 Warren Buffett wrote that in his view, credit derivatives were financial weapons of mass destruction (“FWMDs”). He made the comment while explaining to shareholders why he was unwinding a Berkshire Hathaway subsidiary dealing in them, and few outside of the value investor community paid much heed.

Eight years later we could be singing a different tune in both the media and Congress. After all, we’ve had a financial crisis, $23.7 trillion of potential government financial backstops and a “Great Recession” that were all exacerbated and partially caused by a FWMD explosion. With some notable exceptions however we haven’t changed enough, and these contracts remain poorly understood even as the markets have evolved beyond the levels for which Mr. Buffett first expressed concern.

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Filed Under: Banking, Featured Contributors, Regulatory Tagged With: , , , ,

Where Elizabeth Warren Got It Wrong

February 9, 2010 By Jason Paez 8 Comments

I adore Elizabeth Warren and consider her one of the more courageous policy leaders in Washington today. Her simple, prescient toaster metaphors of 2007 (which I’ve previously mentioned) were brilliant.

However, in her most recent Wall Street Journal Op-Ed, “Wall Street’s Race to the Bottom,” I believe Professor Warren makes unfortunate leaps that weaken her purpose and give credence (if not, outright strength) to the destructive ongoing debate around financial regulation. This debate continues to paralyze our political system, change nothing about the underlying causes of the crisis and offend just about everyone. As American citizens we need to hold our elected officials accountable to get something done now, or history is bound to repeat itself.

This is a preview of Where Elizabeth Warren Got It Wrong. Read the full post (490 words, 1 image, estimated 1:58 mins reading time)
Filed Under: Banking, Featured Contributors, Politics, Regulatory Tagged With: , , , , ,

The Retro-Reacta-Tax: Lamenting Poor Term Sheets

January 15, 2010 By Jason Paez Leave a Comment

When $23.7 trillion in government programs were variously created to provide direct (and indirect) support to the financial system it seems everyone involved either conveniently forgot or didn’t know that firms lay aside 50%+ of revenue for compensation as standard operating procedure. If the goal was to allow banks to “earn” their way out of cataclysmic loss rather than to forcibly unwind them, the synthetic creation of bank revenue would lead to only one possibility with regards industry bonuses.

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Filed Under: Banking, Crisis Capital, Featured Contributors, Politics, Regulatory Tagged With: , , , ,

An Adversarial Relationship…The Missing Ingredient?

December 23, 2009 By Jason Paez 7 Comments

It is neither controversial that mistakes were made leading into the crisis nor that the Fed bears much responsibility. That said, I’m unclear the institution (or Bernanke) deserve such aggression as demonstrated in this article.

Instead of focusing on the Chairman, I’d like to see more interest in the system-wide incentives that drive the current structure. Arguably, almost anyone could have been chairman and the results would have been the same (or far worse).

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Filed Under: Banking, Featured Contributors, Monetary Policy, Politics, Regulatory Tagged With: , , , ,

Polifinancial Forecasting

December 23, 2009 By Jason Paez 2 Comments

As Mark Thoma notes, when the original 3rd quarter growth was announced, the BEA headline figure of 3.5% GDP was big news because it represented a reasonable growth recovery stage. One direct policy implication of this was it took wind from the sails of secondary fiscal stimulus.

Two revisions later — first down to 2.8% and yesterday to 2.2% — and things don’t look nearly as rosy. I wholeheartedly agree that policymakers need better forecasting tools; there were other private sector analysts with better forecasts even without the benefit of government data.

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Filed Under: Banking, Economics, Featured Contributors Tagged With: , , , , ,

Strategic Default vs Corporate Fiduciary Responsibility

December 21, 2009 By Jason Paez 9 Comments

Elizabeth Warren has a fondness for exploding toasters that she’s been arguing since at least 2007:

It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street–and the mortgage won’t even carry a disclosure of that fact to the homeowner. Similarly, it’s impossible to change the price on a toaster once it has been purchased. But long after the papers have been signed, it is possible to triple the price of the credit used to finance the purchase of that appliance, even if the customer meets all the credit terms, in full and on time.

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Filed Under: Banking, Featured Contributors, Markets Tagged With: , , ,

Debating a New Role for the Fed

December 21, 2009 By Jason Paez Leave a Comment

CFR staff writer Roya Wolverson with a terrific overview of the debate.

Debating a New Role for the Fed

Author: Roya Wolverson, Staff Writer

Introduction

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Predictions for 2010

December 21, 2009 By Jason Paez Leave a Comment

For anyone interested in risk analytics of the banking system, The Institutional Risk Analyst is a useful resource. Chris Whalen (a regular on my favorite Bloomberg podcasts with Tom Keene) is worth following in particular.

Today, the group released its high level predictions for 2010. They suggest:

  1. We are officially in a “post real estate boom phase” and shedding exposure is a tactical necessity (Whitney Tilson at T2 Partners argues similar points and is one of smartest investors I know on the subject).
  2. The US banking industry will continue to shrink but hit its peak loss rates during the upcoming year.
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Filed Under: Banking, Featured Contributors, Investment Tagged With: , , , , , ,

The Emerging Market Take Over

December 20, 2009 By Jason Paez Leave a Comment

It’s coming…

The Emerging Market Take Over

On a purchasing-power parity basis, emerging markets are set to account for more than half of global growth, for the first time ever. Whether ISI has the exact timeframe down to the year is less important than the leadership change.

global-nominal-gdp.png

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Filed Under: Economics, Featured Contributors, Investment Tagged With: , , , ,

Readings on Financial Regulatory Reform

December 20, 2009 By Jason Paez Leave a Comment

When the author of Principles of Economics suggests some weekend reading, you will rarely be disappointed.

Readings on Financial Regulatory Reform

By Greg Mankiw

  1. Squam Lake Working Group
  2. NYU Stern
  3. Hart and Zingales
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Filed Under: Economics, Featured Contributors, Regulatory Tagged With: , , , , ,

Too Much Spitzer, Not Enough AIG

December 19, 2009 By Jason Paez Leave a Comment

As a New Yorker I still cringe at details of Gov. Spitzer’s fall from grace, tidbits I wish I could forget. This doesn’t take away from his fundamental arguments with William Black though.

We know too much about Spitzer, not nearly enough about what really happened at AIG.

Show Us the E-Mail

By ELIOT SPITZER, FRANK PARTNOY and WILLIAM BLACK || NYTimes.com

WE end this extraordinary financial year with news that the Treasury is in discussions with American International Group about selling the taxpayers’ 80 percent ownership stake in that company. The government recently permitted several banks to break free of its potential oversight by repaying loans made during the rescue. But with respect to A.I.G., the Treasury should not move so fast. There is one job left to do.

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Filed Under: Crisis Capital, Featured Contributors, Markets, Regulatory Tagged With: , , , , ,

Of Central Banking and Corporate Balance Sheets

December 19, 2009 By Jason Paez 2 Comments

Tyler (who may or may not be more than one person!) over at Zero Hedge is a very fun blogger to read and can be counted on for sharp observations of interesting technical trends, as well as sarcastic wit. His posts on shadow banking are particularly of note.

Cautionary Observations From A Chronological Analysis Of The S&P 500 Balance Sheet

There was a time when investment decisions had more to do with fundamentals than whether Bernanke would wake up tomorrow and decide it is time to stop the liquidity spigot (arguably, the only thing that matters these days). Indeed, if in the odd chance Bernanke is not reconfirmed by the Senate, the huge drop the market experienced last year when Congress refused to get Paulson’s first TARP version to be shoved down its throat, will seem like a Sunday morning picnic.

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“It’s Certainly Not For A Lack Of Effort”

December 19, 2009 By Jason Paez Leave a Comment

The hubris case against bank CEOs has been made before in several flavors but the gist is always straightforward — essentially, proponents argue that bank CEOs haven’t shown nearly sufficient respect for responding to the President given circumstances. It’s hard to imagine there’s not at least some truth, and this is POTUS we’re talking about.

That said, circumstantial evidence doesn’t necessarily prove ill intent, it only implies it. I agree with Simon this was impolite to the maximum but I’m not as certain it will be anyone’s undoing (at least in the short term).

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