Moody’s published a piece the other week that analogized credit quality in the CRE capital markets to the boiling frog – that if you put a frog in cold water and slowly raise the temperature, it never jumps out until it, pardon the pun, croaks. Tad, please tell me you never actually tried that in your youth. I may have done some things as a 12 year old that might have led to questions about whether I was entirely well adjusted, but I never boiled a frog. Do we know that it even works? What a great MythBusters episode. PETA would have a fit.
Continue Reading Ribbet – The Green Cassandra of the Capital Markets
May 2014
The Shadow: What’s in a Name – The Maleficence of Shadow Banking
By Rick Jones on
Long ago and far away, a radio show gave birth to the catchphrase “Who know what evil lurks in the hearts and minds of men? The Shadow knows.” I think, although I’m not entirely certain at this point, that the Shadow was a good guy, but deeply misunderstood and viewed with enormous suspicion by more main stream enforcers of right thinking and morality. Shadows are where bad things happen, where the bad guy hides and jumps out when the teenage starlet inevitably walks into the darkened derelict house, saying in a little voice, “Hello, hello? Billy, are you there?” Bad things inevitably ensue. Shadows are bad.
Okay, what’s this all about? We need to stop the narrative right now that all financial market participants; funds, specialty finance companies, advisors, BDCs, etc., which are not insured depository institutions (let’s call them non-banks for short) are creatures of the shadows. Shadows are bad, non-banks are in the shadows…ok, you get the picture. Our traditional banks, which take deposits guaranteed by the US of A are under the loving and protective wing of the FDIC, the Federal Reserve or the Office of the Comptroller of the Currency (and yes dear Lord, the FSOC). That makes sense, they take Caesar’s coin and Caesar is entitled to a bit of supervision. But the non-banks do not; they risk private capital. That makes a difference.
Continue Reading The Shadow: What’s in a Name – The Maleficence of Shadow Banking
Fed Issues Additional Guidance on Extended Conformance Period – Be Careful What You Ask For
By Sean Solis on
A few steps forward and a giant leap back. This familiar phrase might be the perfect summary of the CLO market’s Volcker Rule roller coaster since December 2013. A few weeks ago we wrote about the Federal Reserve Board’s (the “Fed”) less than satisfying “fix” to address what the market has perceived as one of the Volcker Rule’s unintended consequences. The Fed, in what had seemed to be an honest (although insufficient) attempt to prevent the need for banks to divest of holdings in CLO 1.0 transactions, agreed to provide two 1-year Volcker Rule conformance extension periods. As extended, the conformance periods will expire in mid-2017.
Continue Reading Fed Issues Additional Guidance on Extended Conformance Period – Be Careful What You Ask For