Home 2017-07-28T13:07:05+00:00

A More Perfect Euro-Union

By | May 5th, 2010|

At first the Euro seemed so logical. The southern European countries got sound money and low interest rates. The northern European countries got expanded markets and cheap labor. What could go wrong? The low interest rates encouraged a housing bubble in Spain and overconsumption in Greece and Portugal. Expanded markets fed a Teutonic sense of destiny, and German shipments to the rest of Europe grew [...]

Quis Custodiet ipsos Custodes?

By | May 4th, 2010|

Who will rate the raters? Of all the actors in the financial crisis, the ratings agencies have seen little pain from their abysmal miscalculations. While they collected hundreds of millions in fees rating thousands of deals, 92% of the AAA-rated sub-prime bonds from ’06 and ’07 have been downgraded to junk status. Who pays for these kinds of errors? We all do, really. The overconfidence [...]

Repetition is NOT Flattery

By | May 3rd, 2010|

History has a nasty way of repeating itself, just when it’s least convenient. Corporate profits have been strong. So strong, in fact, that they’ve attracted a lot of interest. Marginally profitable companies have been expanding, borrowing money and building out their businesses to capture these margins. With unemployment high, labor costs have been low. And with interest rates down, lots of companies have been able [...]

Banking on Change (Part 3)

By | April 30th, 2010|

I’ll break banking reform down into two parts: what should be, and what will be. What should happen in finance is a massive simplification that deals with “too important to fail” and provides funds for all kinds of companies that need cash through their product cycle. This should be coordinated internationally, because the cross-border issues are often what makes finance so complex. As the banks [...]

Banking on Change (Part 2)

By | April 28th, 2010|

So are they bankers, or are they traders? That’s the question for the big banks. And it’s a fair question for Congress too, as they debate how we should reform our financial system. Big securities dealers used to be called “bulge-bracket” firms. In the past, they mostly helped companies raise money by selling stocks and bonds, and would trade these securities for their own account. [...]

Banking on Change (Part 1)

By | April 27th, 2010|

Where is banking headed? As an investment manager, it’s my job to have an opinion about this. After all, banking and finance represent almost one sixth of the market. In order to have an opinion about the market, you have to have an opinion about the banks. And right now the banks look like they’re in trouble. The biggest banks—JP Morgan, Bank of America, Wells [...]

The Golden Rules?

By | April 26th, 2010|

Yesterday I made a comment on Goldman’s ethical position. I want to clarify this today. Specifically, I noted that Goldman’s negative bet on the housing market in 2006 was neither immoral, unethical, or illegal. Those are three separate considerations: Legal is the easiest. While I can’t speak to the way they bet on housing, it looks like they used approved investment vehicles in an approved [...]

Debtor’s Equity

By | April 25th, 2010|

With all the fussing about Greek debt, Goldman’s deals, and the equity markets, it’s important to remember a few fundamentals. First, remember that every asset is someone else’s liability. If you own a bond, someone else issued debt. If you own stock, somebody raised equity. This may seem trite, but it has significant implications. The world is 100% long itself. In the end, there is [...]


By | April 23rd, 2010|

The last refuge of financial scoundrels is to blame the short-sellers. That’s what I thought when I read about Greece, once again, blaming traders in Credit Default Swaps (CDS) for blowing up their debt. That’s what I thought when I read all the vitriol leveled at John Paulson for having the temerity to make money for his clients by betting against the sub-prime mortgage market. [...]