morph366

JPM and Maiden Lane: What the Fed Doesn't Want Us to Know

Tom,
You say AIG lost the money - but the story doesn't quite end there
AIG is effectively now part of the public balance sheet

In Support of Goldman Sachs

We should be mad at the GOVERNMENT for making this happen - I think that many of us are... but are you suggesting that GS were blameless in receiving 100% cover on their AIG exposure?

Can We Insure Against Systemic Risk?

"But another way of looking at this is that the systemic risk was always there, but both the buyer and seller of insurance on AAA securities wildly underestimated its scope."

The last sentence of your piece, I believe, poses two very different issues which are wrapped up in the word "scope"

1. The likelihood of systemic risk - it was perceived as much lower than it should have been - the so called Black Swan issue

2. The severity of the losses which would result sequentially from a default - again massively underestimated because of the highly inter-connected web of counter-parties to the CDS market and the implicit leverage involved in the underlying instruments.

The reason for the "wild underestimation" goes to the heart of Nicholas Taleb's critique of the maths involved in measuring the likelihood of extreme or systemic risk. Taleb (in the FT this week) described the mathematical framework for estimating VaR in such critical episodes as basically useless.

Would you still fly in a 747 if you were told that the maths and engineering behind their design was basically useless?
Me neither. But the financial establishment seem quite unfazed about carrying on with their flawed framework for extreme risk management.

Questioning Conventional Wisdom on Credit Default Swaps

JohnL

You make a good point about risk transfer and the fundamental fallacy of the originate and distribute model that underpins CDO's. Risk has to be borne somewhere in the system - it cannot be traded away - it simply passes eventually to the greater fool (s) e.g. AIG, BSC, LEH etc
And when they fall over it passes to all of us.

Atlantic Business, Regulation and the Shadow Banks

Liquidity is a quality of markets and not susceptible to quantitative investigation --- that's why it's always good to hear from an anthropologist rather than an econometrician.

Solvency and Liquidity: Non-Identical Twins, Redux

I have read previous articles that you have written on liquidity -which is one of the least understood areas of macro-economics and finance - and am also becoming convinced that you are right when you declare that "that most liquidity problems are really solvency problems".

This is especially true for those large institutions that have access to central bank liquidity programs etc. and still need to engage in mark to make believe accounting to preserve any semblance of solidity on their balance sheets

Exclusive: Big Banks' Recent Profitability Due to AIG Scam?

Excellent reporting - I wonder how much of trader Lou's observations could be documented in a manner that anyone in Congress would understand.

How Bailouts Are Messing with Capitalism

Your observations are very valid and drill down to the unspoken premise behind the recent bailout moves - which is that the US government will throw everything, including the kitchen sink, into the rescue packages, to avoid having to take any of the alleged Too Big to Fail businesses through a proper re-structuring process.
There seems to be almost a divine calling amongst policy makers in Washington (and London for that matter) urging them not to require the sacrosanct bondholders of many of the ailing institutions to swap debt for equity or otherwise write down the value of their assets.

The Complexity of the Bank Bailout Plan

NancyMarie's questions are well worth answering. If the FDIC can recoup losses from the banks this scheme takes on a very different complexion as far as the anguished taxpayer is concerned.
It would be very useful to get this clarified.

Geithner's Financial Reform Is Doomed to Fail

I would take issue with one of your concluding remarks..."the massive printing operation by the Fed has proven printing massive amounts of money has little effect on the dollar."
It seems premature to be nonchalant about the consequences of QE for the dollar. Already there are serious discussions going on about a new global reserve currency and who knows what kind of inflationary genie has been let out of the bottle - we have some time to wait before that becomes clear.

How We Could Let AIG Fail, Sort Of

The part of the AIG/banker's bonuses debacle that really is absurd is the government's claim that the banking industry need to retain the financial wizards as they may go elsewhere.
The promulgation of this "fear" seems to be even more cynical than the WMD's ruse that was used to justify the invasion of Iraq.
Most of the top talent in the banking world -globally - have no where else to go - and those who think otherwise must live on another planet.
Leave already please.
The real world could handle a proper wind down of AIG - and why not Citigroup while they're at it.

Main Street Is Wall Street Now

Re: Comment from Mr. Big
Invoking game theory in regard to mutual benefits in the stock market raises many interesting issues. You cite the case of investors seeing the wisdom in supporting companies that have temporary liquidity problems to keep them viable… but if the companies are facing falling demand due to growing unemployment and economic contraction when does a liquidity problem turn into a solvency problem?
It is also not difficult to construct a version of Investors’ Dilemma in which all parties see a mutual benefit in cooperating to promote a self-reinforcing and benign market for all participants. Such is the logic of bull markets and taken to extreme such is the logic of bubbles.

Financials Watch: AIG Brouhaha Distracts from Other Improprieties

Good insight into another new scam.
You say that "someone will figure out.... that the TALF plan is a thinly veiled bailout of the hedge fund industry." It sounds like you have already!

Tim Geithner Should Be Drawing the Mob More than AIG

Yet more evidence that the lunatics have taken over the asylum

Looting Goes Mainstream: The Trouble with Government-Backed Risk

Thanks for the link to the “Confusion, Tunneling, and Looting” post which I have just read and which is right on the money (so to speak).
Complexity and spin are two key ingredients that enable elites to preserve their power and influence - and it sure helps to have many in the financial technocracy who are just as mystified by the complexity of it all as the average citizen.
Only through putting these issues into the mainstream media is there even the remotest hope that another Too Big to Fail fiasco can be avoided. Alas I am not too hopeful.