January 26, 2015
I got an email today from a friend that I hadn’t heard from in about a year. Even though we both live in the same state, it seems like arranging the hour+ drive each way doesn’t happen too often these days, for either of us.
He was congratulating me on publishing Finance Monsters, and letting me know that he downloaded it this morning to have some reading during the blizzard that is now getting its act together to bury us in snow. I’ve also been preparing for the likely two or three days of isolation, and I realized that none of the “emergency” kits suggest some reading. Plenty of people are encouraged to get more batteries for their junk drawers, gallons of water, full tanks in their cars, etc., but nobody seems to consider stimulating their minds as a necessity they might want to do, even without power.
Like the guy with the bumper stickers that read “Eat More Kale” who won when defending himself against Chik-Fil-A, I think the time has come for bumper stickers that say “Read More Books.”
January 21, 2015
When a financial market sector is doing well on Wall Street, you can be sure that it will get exploited until it breaks.
One of the ways this happens is through “ratings shopping.” If one rating agency holds tougher standards, the dealers will go to the others. If the product is wanted by enough buyers, the credit and disclosure standards begin to slip for the whole market. Lenders, rating agencies or investors who insist on higher standards are basically forced out of business.
In Finance Monsters, I did give the Rating Agencies a partial defense for their ratings on subprime bonds, but the news this week is indefensible. Today the SEC announced a settlement with Standard & Poor’s regarding their ratings on CMBS (Commercial Mortgage-Backed Securities) in 2011. They will be paying $77 million to the SEC and two state Attorneys General, and will also be suspended from rating the largest part of the CMBS market for a year.
2011? Are you kidding me? By my recollection, in 2011 the “peasants” were still outside the doors of the Rating Agencies with pitchforks and torches, calling for blood after the global financial crisis.
Read the rest of this entry »
January 18, 2015
And to Whom?
$26.9 billion in CDS muddy the waters in Caesar’s Casino’s $18.4 billion in debt restructuring.
With two main classes of debt, the senior bondholders have agreed to terms and filed Chapter 11 together with the private equity owners of the company in bankruptcy court in Chicago. But holders of the junior debt are suing, and also filed for Chapter 11 bankruptcy, but in Delaware.
And then there’s the Credit Default Swap (CDS) position, roughly one and a half times the size of the debt issues.
The junior debt holders didn’t get their interest payment in December, a deferral the company points out is allowed in the subordinated bond offering documents. Still, the holders of the much larger CDS position went to the International Swap Dealers’ Association (ISDA) to ask for a payoff. In the parlance of the Association, they wanted the missed payment declared a “credit event.” Read the rest of this entry »