Bloomberg has a fantastic article today about how Lehman’s decaying corpse is suing a bunch of former clients, many of them wee and sympathetic nonprofits, who hosed Lehman when they terminated swaps in September 2008. Some of these lawsuits turn on disputes over when those clients, or their consultants, should have valued the swaps for termination purposes, and I was looking forward to reading Bloomberg’s account of which of those customers used the SWPM <go> function on their terminals and on what dates, but for some reason that wasn’t mentioned.
The basic story is that clients had trades with Lehman that were in-the-money to Lehman, and when Lehman went bankrupt the clients terminated the trades and wired Lehman termination payments that Lehman now rather belatedly finds inadequate. You could understand why the clients would want to get out of these trades: for one thing, the trades had moved against the clients (thus being in-the-money to Lehman) and seemed likely to move further against them1; for another, if the trades did move back in the clients’ favor, what were the odds that a freshly bankrupted Lehman would pay the clients what they were owed?
Is Lehman right that the clients underpaid? Oh, I mean, of course. I don’t have the details of the trades but you can reason this out from first principles. Here:
- It’s September 15, 2008, and Lehman has just filed for bankruptcy.
- You owe Lehman some money.
- How much you owe them is a somewhat subjective matter that depends on what termination date you pick, what model you use, whom you ask for a quote, etc.
- You know, with some certainty, that everyone at Lehman who knows anything about your trade, and also everyone who doesn’t, has bigger things to worry about, like stealing office supplies on their way out the door.
- You can basically write them a check and enclose a note saying “here’s what we think we owe you,” and see if they write back.
- How big is the check?
It’s not just Jeffery Gundlach’s daily pleas for a < DP > command. Even your and Alan Greespan’s inability to master the terminal’s most terribly elementary functions will do. Read more »
I confess that I have not followed the swap-futurization thing closely but my assumption was that the politico-regulatory view was:
- Swaps are evil instruments of financial instability and fraud and should be discouraged, and
- Listed futures are mostly harmless.
You can have various objections to this preference for futures,1 but surely the most compelling is that swaps and futures are to some reasonable approximation the same thing. They’re just delta-one exposures to some underlying quantity; calling them a “swap” or “future” doesn’t matter economically.
Why Should Taxpayers Give Big Banks A Subsidy of $83 Billion Per Year, Or Any Other Made-Up Number For That Matter?By Matt Levine
Bloomberg has an editorial today about how the government is subsidizing the top ten U.S. banks by $83 billion a year and maybe it should stop doing that. Because the editorial is getting a lot of attention, and because it is wrong, let’s discuss it.
Here is Bloomberg:
Lately, economists have tried to pin down exactly how much the subsidy lowers big banks’ borrowing costs. In one relatively thorough effort, two researchers — Kenichi Ueda of the International Monetary Fund and Beatrice Weder di Mauro of the University of Mainz — put the number at about 0.8 percentage point. The discount applies to all their liabilities, including bonds and customer deposits.
Here are Ueda and di Mauro:
[W]hen issuing a five-year bond, a three-notch rating increase translates into a funding advantage of 5 bp to 128 bp, depending on the riskiness of the institution. At the mid-point, it is 66.5 bp for a three-notch improvement, or 22bp for one-notch improvement. Using this and the overall rating bonuses described in the previous paragraph, we can evaluate the overall funding cost advantage of SIFIs as around 60bp in 2007 and 80bp in 2009.
Let’s break that down. Their paper: Read more »
Spoiler alert: Bové doesn’t believe BBW has the balls to respond to him. Read more »
Don’t want to jump to any conclusions here, only asking because that seems to be the case with today’s essay entitled “Whitney Falters in Trying to Repeat Success of Citigroup Call.” Read more »
Hey lovebirds! Anyone getting married soon? Want to communicate something to your new husband or wife? Want it to be, “I work all the time and I’ll pencil you in when I can” and/or “I hate you”? Might we suggest the the following? Read more »
As you’ve probably experienced first-hand, Bloomberg runs a pretty full service help desk. In need of guidance? Bored? Horny? Log right on– that’s what they’re there for. Associates have been known to make restaurant recommendations, play rousing games of Hang Man, do entire large scale projects if one is able to thoroughly exasperate them by pretending to be a hopeless imbecile long enough (…try it), or just provide a sounding board for you to talk shit about your ex-boyfriend. So the news that a mere query re: strip clubs is apparently too much for their Victorian sensibilities is distressing to say the least. Read more »
Yesterday we asked you guys to tweak the list compiled by BroBible, of the hottest business bitches. And they took many of your suggestions to heart! Namely the lack of Bloomberg representation. Before we get into that, however, some notice should be paid to a little something called the Amanda Drury Phenomenon. It was pointed out recently that it seemed as though Margaret Brennan was perhaps taking a page from her former colleague’s playabook, namely in the wardrobe department, based on the evidence found here. We agreed, though it seemed as if MB was doing so slowly, just dipping her toe in at first. Apparently, however, this assumption was dead wrong. MargBren is not just following in the Druries footsteps but endeavoring to beat them at their own game.
Is AD going to let this happen? We’re assuming no, as she invented the damn thing (not aggressive displays of cleave in general, but certainly the cable business edition) but obviously stay tuned. Additions to The List after the jump.
Yesterday we mentioned the harrowing, life-shattering news that Bloomberg had removed the function that allowed you to see how many people were clicking your profile, and checking your shit out, as confirmed by a Help Desk representative. Today, it’s back. Not that we’re not thrilled for those you who enjoy the idea of people watching you, but we’re just wondering why the sudden about face?