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« NPR: Zombie Banks | Main | Weekly Standard: Putting the Toothpaste Back into the Tube »

March 26, 2009

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Blake Campbell

Great article. You nailed it again.

Cdovi

Andy

Can you explain this paragraph? The reason I ask is that it seems to suggest that capital requirements contributed to this crisis by making financial companies take actions (buy or sell CDSs) that they would not otherwise do in a free market? Is there anyting to that? What is that rule about reserves and insurance and what you can carry on your books as good capital? Also seems that the AAA rating system (another regulatory construct) caused them to not otherwise value their risk properly.

"Since these derivatives were so weird, if you wanted to count them as part of your reserves, regulators demanded that you buy insurance against the derivatives defaulting. And everyone did. The "default insurance" was in the form of credit default swaps (CDSs), often from AIG's now infamous Financial Products unit. Never mind that AIG never bothered reserving for potential payouts or ever had to put up collateral because of its own AAA rating. The whole exercise was stupid, akin to buying insurance from the captain of the Titanic, who put the premiums in the ship's safe and collected a tidy bonus for his efforts."

zeke

Andy, re your last sentence.

I know about the problems with autos and with California. But I'd love it if you elaborated on cellular and on cable.

JimBob

Yep, blame the shorts and not the banks.

VinceP1974

Fundamentally doesn't this entire debacle boil down to the Government's interference in the mortgage business and the distortion of lending and securitization risk models due to that interference?


I see plenty of forensics being done on what inside the Wall Street domain doomed these companies to failure, but I see little done on what the Govt contributed especially via their GSE policy.

Weren't the AAA ratings established due to the loan behavior patterns before the changes of the 1990s? Weren't those changes spearheaded by the Govt?


Wasn't the Garden of Eden's low-hanging Fruit dangled in front of every investor's eyes by (implictly or not) Government-backed GSE securitizations?

Weren't the GSEs practically bottomless printing presses of lethal debt?

Has anyone tried to figure out if the GSEs did not exist, would the world ever have been able to issue so much debt?

(I am not in the money business. I'm just a 'regular' guy.. if some of my terms are wrong, please indulge me and use the proper term instead)

Frank Leccese

If you are correct, then it follows that there were entities that "collaborated" to initiate the bear raid since I doubt that one or two entities could have done it on their own. Therefore, an interesting follow-up to your article would be an article describing the anatomy of the entire process beginning with the analysis, decision making, transactions required etc. Naming names & profits derived would be extremely interesting, a la Soros/Pound Sterling raid.

thesis

Andy, you've nailed it. Cronkite was right out or "Farenhiet 451"; the talking head on the video wall telling us what to think. Journalists are supposed to challenge and expose, not lull us into a stupor.

Scarpe Louis Vuitton Outlet

Re lavorare.In ultima primavera di Louis Vuitton 2012 e l'estate degli uomini grandi, invitati a gli anni '90 del secolo scorso, il piĆ¹ caldo

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