tag:blogger.com,1999:blog-4815867514277794362.post5007457395275456923..comments2024-03-08T06:18:28.125+11:00Comments on Bronte Capital: Repo 105’s antecedents: Ken LewisJohn Hemptonhttp://www.blogger.com/profile/03766274392122783128noreply@blogger.comBlogger31125tag:blogger.com,1999:blog-4815867514277794362.post-51911397985287375182010-04-05T18:22:07.101+10:002010-04-05T18:22:07.101+10:00John,
If I remember correctly your politics is to ...John,<br />If I remember correctly your politics is to the right (Republican we say here in America, not sure "over yonder" those parts what they call it). I'm on the left, but I want to say I really admire you for digging into these numbers. Don't quit digging in those balance sheets and income statements even when those eyes feel tired. And don't lose that cursed long-term memory. A lot of people out here appreciate what you do that lost art.Ted Khttp://grahambrokethemold.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-54994977894948245782010-04-03T05:11:40.510+11:002010-04-03T05:11:40.510+11:00"what benefit is there in changing the levera..."what benefit is there in changing the leverage ratio"<br /><br />Financial industry twits -- if leverage doesn't matter so much, then why shouldn't we put Bill Black back in charge of all federal and state regulators and state clearly that 10:1 is the maximum allowed, with no games permitted?<br /><br />Surely if there's no problem then you wouldn't mind being on the receiving end of a 20-yr felony prison term for one-one thousandth of a point of error, would you?<br /><br />Of course leverage matters.. bank profits are higher if they can lever more, but taxpayer losses are also higher when those incompetent morons make yet another mistake.Unsympathetichttps://www.blogger.com/profile/01139905123679721805noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-44239585766395410782010-03-29T16:48:19.463+11:002010-03-29T16:48:19.463+11:00Whatever one wants to say about using repos, they ...Whatever one wants to say about using repos, they are indeed old news. I heard of banks using them years ago, so whatever else, one knows that the regulators were not fooled in any way. Nor, as you show how easy it is to back out averages, would any serious investor be fooled.<br /><br />The only difference, AFAICT, is that we no longer have independent brokerages that close their books in Feb/May/Aug/Nov, so the banks' quarter-end repos need to go somewhere else: foreign banks seem as good a place as any. Might cost another basis point due to the lesser competition, so the window-dressing is less justifiable than before. Only one of dozens of "putting one's best foot forward."Walt Frenchhttps://www.blogger.com/profile/00873789914522579055noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-15914164185045040412010-03-29T12:23:05.060+11:002010-03-29T12:23:05.060+11:00Actually i think the examiner's report indicat...Actually i think the examiner's report indicated that many of the lehman assets involved in repo 105 were of higher quality than much of what was causing trouble. I guess this was necessary to induce the counterparties to participate.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-78660912531177127272010-03-26T06:43:48.692+11:002010-03-26T06:43:48.692+11:00Well said Cassandra. Don't forget mark-to-'...Well said Cassandra. Don't forget mark-to-'book' v. mark-to-market, which is still grossly inflating financials. <br /><br />... and yes, that's legal too. <br /><br />Because, apparently buying-off American politicians has become a more fundamental component of these firms' business model, than actual BUSINESS.<br /><br />Every time I hear someone like Blankfein pontificate about the Banks' social value in reallocating scarce capital to drive entrepreneurship - I get a great belly laugh.<br /><br />They're reallocating capital in a very 'entrepreneurial' and 'innovative' way alright!Lucy L. Honeychurchnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-30915189612338028942010-03-26T03:15:41.781+11:002010-03-26T03:15:41.781+11:00John Blunt's characterization (Mar 22) of the ...John Blunt's characterization (Mar 22) of the problem is spot-on:<br />"...there are lies, damned lies, statistics and audited accounts. And the biggest untruth of all is in the audited accounts."<br />It is surely not a Lehman or a Bank of America thing. They are just responding to the carrot (or stick) that is dangled in front of them. We all know too well about the limitations of - and dangers of extrapolating from - a point-in-time accounting representation of a company's finances. Yet we continue to evaluate a company's financial health by calculating sophisticated performance metrics and even determining regulatory compliance based on these end-of-period accounts. If we are serious about wanting to change corporate behavior let's start with revamping our evaluation systems.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-9212036538745162492010-03-26T01:38:15.137+11:002010-03-26T01:38:15.137+11:00Also, this is presumable completely unrelated...
...Also, this is presumable completely unrelated...<br /><br />http://www.ft.com/cms/s/0/1a291a56-35cc-11df-aa43-00144feabdc0.html<br /><br /><br />Schmuckler... hmmmmAndrew (London)noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-85187237541885337942010-03-26T01:34:49.009+11:002010-03-26T01:34:49.009+11:00*sigh* see Anglo Irish Bank for my homelands prima...*sigh* see Anglo Irish Bank for my homelands primary example of such practices. These dubious accounting systems feel all to obvious.<br /><br />Quis custodiet ipsos custodes?Andrew (London)noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-66850331822458639762010-03-24T15:23:13.503+11:002010-03-24T15:23:13.503+11:00Mr Hempton has already answered this question, I w...Mr Hempton has already answered this question, I want to elaborate that by saying many decisions are made by people who only read summaries, and the few percentage points in credit metrics made all the difference on a powerpoint slide. Mr Hempton's observation re MUFJ/Bank of America is a piece of artwork - almost moving me to tears. The closest comparison to that is Mr Ted Butler suggesting Bear Stearns had a huge short position in silver, which was assumed by JP Morgan when JPM bought Bear.<br /><br />"However, what benefit is there in changing the leverage ratio by 1 or 2 pts? They were already heavily leveraged, I don't see if they are 14 times leveraged or 12 times leveraged it would have made anyone bat an eye. <br /><br />Would anyone have really changed their opinion on Lehman from a buy to a sell? I doubt it, not given the climate at the time."Timothy Maknoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-69086030567327247872010-03-24T13:15:33.697+11:002010-03-24T13:15:33.697+11:00Lehman's is small fry compared to Goldman. GS ...Lehman's is small fry compared to Goldman. GS cooks every $ to 32 thousand something; of course this is now, not that unregulated 2008<br />nightmire.Maryhttps://www.blogger.com/profile/14360847711941044673noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-55736028942721789382010-03-24T13:11:11.273+11:002010-03-24T13:11:11.273+11:00Come on, it's the secret agreements that are b...Come on, it's the secret agreements that are belied by the tactics. Of course it's only top rated collateral -- there was no contract for the conterparty to fall back on, so they needed to hedge in the event of a loss. It's always the secret agreements with these guys, yet everyone wants to parse what is publically known to the nth degree. But hey, maybe they are all smart as Paulson, who doesn't keep notes or use email because he has a fantastic memory. Can anyone say Capo de Tutti Capo?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-87347419264037999202010-03-24T13:06:08.517+11:002010-03-24T13:06:08.517+11:00Lehman's is nothing compared to Goldman Sach. ...Lehman's is nothing compared to Goldman Sach. One dollar at GS is leveraged at 33,xxx.00. Gosh, what a scam, where are the cops????Maryhttps://www.blogger.com/profile/14360847711941044673noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-49202639478352401782010-03-24T13:06:08.518+11:002010-03-24T13:06:08.518+11:00Disclosure of Repo 150s was done in accordance wit...Disclosure of Repo 150s was done in accordance with the law. Don't play into Government Sachs' hand and go shilling for them. Taking down BofA will make only Goldman Sachs' CEO richer. Don't be a pawn.Common Sensenoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-12155556655200688992010-03-24T12:49:54.003+11:002010-03-24T12:49:54.003+11:00WE KNOW HOW THE JUSTIFIED IT. BY LYING.WE KNOW HOW THE JUSTIFIED IT. BY LYING.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-72918658734985240802010-03-24T11:43:14.385+11:002010-03-24T11:43:14.385+11:00so I don't feel so bad now, since I did not ge...so I don't feel so bad now, since I did not get caught, that I padded my sales and commissions by selling big lots of 'aged' disk drives to make my year end number and subsequently took a 'customer convienience' return from my largest customer the next period. In fact I helped my company on the ROII and aged writedown too, good thing I could hold up the trailer so no shipping cost was incurred.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-7716284080200382812010-03-24T11:36:08.325+11:002010-03-24T11:36:08.325+11:00Thank you Cassandra! Three great paragraphs that s...Thank you Cassandra! Three great paragraphs that summarize the situation with gusto and perspicacity.<br /><br />And let's not forget the great accounting scandal of 'The Smartest Guys in the Room' - <br /><br />Where are we headed with all of this?Paulhttps://www.blogger.com/profile/00578022595911910810noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-50429811148855978402010-03-24T00:01:34.722+11:002010-03-24T00:01:34.722+11:00John,
I remember the scathing denunications comin...John,<br /><br />I remember the scathing denunications coming the USA in regards to the arguably laughable and ludicrous zaitech shenanigans in Japan. So pure and transparent were the US by comparison, people argued. But :"what's normal" in the USA has travelled a long long way, as a mere inventory reveals continuously across the time-line:<br />- Tainted & conflicted analysts passing off as "research", <br />- largest mutual fund companies complicitous in mutual-fund timing, <br />- rampant, options back-dating, balance sheet and income statement fabrication across a wide universe of securities; <br />- altering of pension-fund return assumptions; <br />- ludicrous, unbenchmarked and grossed-up executive comp schemes,<br />- abuse of SPVs and tax-havens for balance sheet distortion and tax avoidance<br />- bid-rigging by brokers across the entire reinsurance industry<br />- "finite-insurance" to directly smooth earnings<br />- wholesale capture of the ratings agencies at the very center of financial money markets <br /><br />This is before one even talks about the abuse of securitisation-run-amok, and the shadow banking system. And I am sure I have left a few out. All these things were/are criminal in the spirit of the law, and most to the letter. It has got to the point where one has to look hard for the honest company with real values. Ahhh, yes, one points to Warren Buffett and that pillar of sobriety, Berkshire Hathway. Errr ummm, except that even the revered WB was front-and-center to the finite reinsurance game of providing earnings-smoothing "insurance" and earnings management to those in need. Anything to make a buck. <br /><br />At least the Japanese bowed their heads in shame, and eventually fessed-up and took the medicine. Mr Buffett, by contrast disavowed himself of all knowledge of these activities, for crimes which his loyal underling now is rotting in jail. With Repo-105, only the number of zeros have gotten larger, with the pattern of behavoiur of what is normal, completely out of bounds to what prevailed, and what is required in modernity to enforce the rules of fairness and what remains of trust, else the entire system unravels towards lawless chaos, or an authoritarian nightmare arbitrarily awarding the spoils to the cadre of cronies ."Cassandra"https://www.blogger.com/profile/17412381249313151515noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-7024170442269554122010-03-23T12:05:18.924+11:002010-03-23T12:05:18.924+11:00Anon 1: There's an enormous advantage in chang...Anon 1: There's an enormous advantage in changing the leverage ratio by 1 or 2 points. Do you think Lehman traders did $50 billion of overpriced international repos with cumbersome rules because it was fun? Out here in the real world numbers matter, because we're not just looking at companies and saying "Eh, double-digit leverage - all the same". Superficially small differences in risk-taking are the difference between Lehman at 0 and Goldman at 170. In the particular case, the ratings agencies cared a great deal about leverage ratios and would have downgraded Lehman more aggressively had they known true leverage. These downgrades would have caused a much more rapid failure as counterparties pulled back from Lehman or demanded more collateral (see Bear Stearns, AIG). Lower leverage/better balance sheet makes it much easier to roll funding and attract new equity. Lehman had an undeserved chance to raise capital during the spring/summer of 2008, which management completely wasted. The fact that the outcome was the same as it would have been had they disclosed the truth shouldn't blind you to the fact that they went to great lengths to hide the truth from investors while continuing to pay themselves fat salaries and make big promises to the public. The eventual failure of the company was made vastly more chaotic and destructive by years of increasing leverage and obfuscation.najdorfnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-63108130330644190752010-03-22T23:19:18.166+11:002010-03-22T23:19:18.166+11:00>>>Besides – if we are going to slap Erin...>>>Besides – if we are going to slap Erin Callan’s wrists in handcuffs then we are going to have to do the same to Ken Lewis and probably have to extradite the top-end of the Japanese establishment who were the counterparties. <<<<br /><br />Only if "we" were going to be fair--and I suspect "we" are not going to be. Bernie Ebbers is in jail when a lot of his peers are not--someone will be made an example of in this case as well.But What do I Know?noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-79199198692670021772010-03-22T22:43:05.124+11:002010-03-22T22:43:05.124+11:00questionning the state of mind of those with whom ...questionning the state of mind of those with whom you disagree kinda closes down any room for honest debate.Doug Shawnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-76769981238063517672010-03-22T18:02:29.510+11:002010-03-22T18:02:29.510+11:00John Maynard Keynes is quoted as having said, way ...John Maynard Keynes is quoted as having said, way back in 1931, that<br />"a sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him.”<br /><br />Jeez, Keynes was a sharp guy.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-20153002636831289022010-03-22T17:55:24.388+11:002010-03-22T17:55:24.388+11:00It doesn't follow that bank of America was usi...It doesn't follow that bank of America was using Repo 105 or anything like it. All big banks squeeze their balance sheets at the end of the quarter. But there's a difference between doing that by reducing positions as you move to quarter end and the purely cosmetic operation of Repo 105.<br />What Lehman did sounds dreadful. But suppose they had just sold the position at 105, along with selling a put at the same price and buying a call at 105 as well. <br />Nobody suggests that options need to be in the balance sheet, yet the risk would have been the same as in what Lehman did.<br />You just need to remember that there are lies, damned lies, statistics and audited accounts. And the biggest untruth of all is in the audited accounts.Gobanianhttps://www.blogger.com/profile/06624944704653618487noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-67273645318436681732010-03-22T13:19:58.863+11:002010-03-22T13:19:58.863+11:00Agreed with anonymous above.
Most of the assets th...Agreed with anonymous above.<br />Most of the assets that were parked off balance sheet using repo 105 were treasuries and agencies. Very few corporates, and only a few percent of more complex securities.<br /><br />FT Alphaville has a pretty detailed breakdown:<br />http://ftalphaville.ft.com/blog/2010/03/12/173261/whats-in-repo-105/<br /><br />A lot of banks use special vehicles and constructions to get holdings off balance sheet. The main criticism in this case is that<br />1) It may have been illegal under US law<br />2) It was not properly disclosed.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-62350544151277864412010-03-22T08:46:52.586+11:002010-03-22T08:46:52.586+11:00wasn't repo 105 only used to park treasuries? ...wasn't repo 105 only used to park treasuries? seems the line about "parking assets not wanting to discuss" is fallacious...Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-64816671986488779802010-03-22T04:59:17.651+11:002010-03-22T04:59:17.651+11:00One point and one item of speculation:
In standin...One point and one item of speculation:<br /><br />In standing as counterparty to the repos at issue, I don't see how the Japanese bank has done anything criminal under US law. They aren't accused of prettying their balance sheet and are not responsible for BoA/Lehman etc. financial reporting. <br /><br />Of course, getting the testimony of a bunch of Japan-resident individuals will be a pain, especially as no criminal charges will be filed, so no extradition.<br /><br />I wonder whether that was one of the reasons underlying the decision to engage in swaps with this particular bank?<br /><br />Of course, as you pointed out, the number of counterparties is limited and Masters of the Universe are practically immune to investigation, much less imdictment or conviction.<br /><br />We don't need any commies in the fbi! SidAnonymousnoreply@blogger.com