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I had planned to write an epilogue to the “credit woes” series. Then I read the New York Times’ long interview with Robert Rubin this past Sunday in which he was quoted as saying: “I don’t know of anyone who foresaw a perfect storm.” I suppose this statement is correct in the sense that Bob …
Anatomy of a Crisis: The “Credit Woes” of the Summer of ’07 – Epilogue Read More »
Nassim Taleb is the man of the hour, sought after by the press, on demand as a speaker in financial seminars. The sudden fame comes from the success of his most recent book, The Black Swan. Like Taleb’s previous book, Fooled by Randomness, The Black Swan is about the unpredictability of the unknown. For the …
I said overnight the technicalities grow in importance. In fact, the important technicalities are always present. The next day, they merely come to the surface. At 8:30am the next day, the term of the loan ends. The investor is due its $10 million (with the accrued interest). When it is paid, the collateral would be …
Anatomy of a Crisis: The “Credit Woes” of the Summer of ‘07 – (10) Read More »
A few days back I wrote about the collapse of the insurance business model in the US. I pointed out that the traditional business model is breaking down under the strain of newly developed forces. Today’s New York Times had a front page article on the multifold increase in the co-payment for expensive prescription drugs. …
Present at the Destruction: Further Evidence From the Marketplace Read More »
The “structure of capital and financial markets” is a standard course in every business school. It has a set agenda, designed around descriptions and definitions such as: what is a stock exchange, how corporations raise money and the difference between money markets and capital markets. (The students, like their teachers, rarely appreciate the last point, …
Anatomy of a Crisis: The “Credit Woes” of the Summer of ’07 – (9) Read More »
If you live in the US, you are familiar with the Geico lizard. Thanks to saturation advertising on TV, Internet and in the print media, there is no escaping the talking reptile that pushes Geico car insurance with an Australian accent. The hook is lower premium–music to ears of the mortgage-ridden US drivers in the …
So, why CDO and not MBS? What is the difference between these securities? Considered in isolation, the answer is, very little. But nothing exists out of context, certainly not when it involves speculative capital that can only exist within a relation. The critical difference between an MBS and a CDO is this, that an MBS …
Anatomy of a Crisis: The “Credit Woes” of the Summer of ’07 – (8) Read More »
For arbitrage to be possible, there must be a difference in rates; the larger the difference the bigger the arbitrage profit. Differences in rates are due to either the variation in tenor (time to maturity) or credit quality. To maximize its profit, speculative capital sets to borrow at the lowest short term rate and use …
Anatomy of a Crisis: The “Credit Woes” of the Summer of ’07 – (7) Read More »
When it was announced a few days ago that Tony Blair was going to teach religion at Yale – he will teach “how religious values can be channeled toward reconciliation rather than polarization” – I thought we had hit the equivalent of Absolute Zero on the absurdity index. You could not possibly top that – …
The essence of arbitrage is constant. Its form varies from one occasion to the next, depending on the circumstances. So while it is possible to demonstrate the concept of arbitrage with a simple example, the particular form in each case must be elaborated. It is this variation of the form that appears as a new …
Anatomy of a Crisis: The “Credit Woes” of the Summer of ’07 – (6) Read More »