• M&A, News

    You Can Buy That Hot Social Networking Company But You’ll Never Be Able To Capture Its Magic

    One of the more fertile areas of academic finance is explaining why M&A is so bad – mergers seem to be on average value destructive, so why do they keep happening? Are CEOs just stupid? Are bankers just evil and persuasive? Here’s one answer that may be worth considering, which is that it looks like […]

    / Jun 18, 2012 at 6:46 PM
  • News

    The CDS Market For Lemons

    A stylized picture of a credit default swap is that it’s a way for a bank to offload to the market the credit risk of loans that it makes, while still funding those loans and making a profit on them. If you start from that stylized picture, you must at some point get comfortable with […]

    / Jun 1, 2012 at 4:03 PM
  • Banks, News

    Markets Are Telling Us That Too Big To Fail Is All Better

    Oh am I a sucker for this sort of thing: This paper proposes a theoretically sound and easy-to-implement way to measure the systemic risk of financial institutions using publicly available accounting and stock market data. The measure models credit risk of banks as a put option on bank assets, a tradition that originated with Merton […]

    / May 7, 2012 at 5:47 PM
  • M&A, News

    Spending A Year On An M&A Bidding War Is Apparently Overrated

    There are probably some things that bankers could advise companies to do that are unequivocally bad. Obviously if I were Bank X’s Executive Director and Global Head of Lighting Money on Fire, and I went around showing companies a pitch book that was all “signalling benefits of lighting money on fire,” and I got a […]

    / May 2, 2012 at 4:06 PM
  • News

    Quis Custodiet Ipsos Egan-Joneses?

    Let’s not stop there with the clichés.* Here’s a great one: “never attribute to malice that which can be adequately explained by stupidity.” In applied form: your model of all the AAA mortgage CDOs that were maybe not so AAA could be “ratings agencies were paid by banks so they were venal and corrupt and sold the banks good ratings on products they knew were bad.” Or it could be “ratings agencies created medium-dumb criteria to make a thing be AAA, and bankers who were smarter than medium-dumb arbed those criteria to make more things be AAA than should have been AAA.” The incentives model has good economic theory behind it, and some suggestive evidence; the stupidity model has that lovely cliché but also some evidence, about which more later.

    But first hilarious contrarian ratings agency Egan-Jones is in trouble:

    / Apr 19, 2012 at 3:53 PM
  • ack


    Breaking: Employees Rush To Finish Projects Before Vacation, Have A Lot To Do When They Get Back

    The beginning of April brings with it, among other things, a new batch of NBER papers, and here is one that is mildly amusing but probably not an April Fool’s prank, although it is called “Tailspotting: How Disclosure, Stock Prices and Volatility Change When CEOs Fly to Their Vacation Homes,” so, y’know, maybe. Anyway it’s […]

    / Apr 2, 2012 at 11:41 AM
  • Banks, News

    TARP Charts!

    The Federal Reserve has this new paper out about TARP that does a bit of highly suggestive eyebrow raising about some banks that shall remain nameless. They start from the awkward fact that TARP wanted everything in one bag but didn’t want the bag to be heavy, or as they put it:

    The conflicted nature of the TARP objectives reflects the tension between different approaches to the financial crisis. While recapitalization was directed at returning banks to a position of financial stability, these banks were also expected to provide macro-stabilization by converting their new cash into risky loans. TARP was a use of public tax-payer funds and some public opinion argued that the funds should be used to make loans, so that the benefit of the funds would be passed through directly to consumers and businesses.

    So you might reasonably ask: were TARP funds locked in the vault to return the recipient banks to financial health, or blown on loans to risky ventures, or other? Well, here is Figure 1 (aggregate commercial and industrial loans from commercial banks in the U.S.):

    So … not loaned then. But that’s not important! The authors are actually looking not primarily at aggregate amounts of loans but at riskiness of loans and here’s what they get:

    / Mar 7, 2012 at 6:06 PM
  • Basel. Where the BIS is. I'm getting more and more into soothing photos of architecture. Enjoy!


    BIS Paper Reminds Us That All’s Well In The Derivatives Market

    The gnomes at the Bank for International Settlements have produced a particularly gnomish paper called “Collateral requirements for mandatory central clearing of over-the-counter derivatives.” Wait! It might be important! Hear them out. (There’ll be charts …) Their goal is to measure how much more cash collateral the big dealer banks will need to encumber to […]

    / Mar 6, 2012 at 3:44 PM
  • M&A, News

    Potential New Way To Create Value For Shareholders: Issue More Press Releases

    I always feel bad bringing you academic papers because inevitably they’ve been on SSRN for, like, two years, but this one is new to me anyway and good glaven are these charts clever: So these guys (Kenneth Ahern and Denis Sosyura of Michigan) went and looked at a bunch of stock-for-stock mergers. And they looked […]

    / Feb 29, 2012 at 4:16 PM
  • Banks, News

    And Now An Argument That More Capital Makes Banks Less Safe

    One reason that you’re in for seven lean years in the investment banking business is that bank capital requirements are going up due to Basel III, and “capital is expensive” in some loose sense, so banks will have less money to use to make loans and/or pay you. Some people think that this is mostly […]

    / Jan 27, 2012 at 1:43 PM
  • News, Regulation

    Volcker Rule Is Bad For Securities Industry, Says Guy Paid By Securities Industry To Say Volcker Rule Is Bad For Securities Industry*

    We’ve talked a bit before about the Volcker Rule and how it’s going to have creepy unintended consequences because it is really hard to distinguish “market making,” which is what bank-broker-dealers are supposed to do, from “proprietary trading,” which is evil and destroyed the world. Today we have an excuse to talk about it again […]

    / Jan 17, 2012 at 6:06 PM
  • News

    Caption Contest Wednesday

    [The Oracle Of O and Mr. President talk shop at the White House this afternoon.]

    / Jul 14, 2010 at 2:24 PM

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