Credit Crisis

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It’s still in the early days of 2014.  I think it’s finally stopped snowing in the East, the sun has come out and the stock market is continuing to outperform the woe purveyors.  Republicans and Democrats have gotten something done on the budget; lions have laid down with lambs; geopolitically, the world’s a mess but no one seems to care back home.  The financial crisis of 2007 and 2008 is beginning to fade into history.  Things are pretty good and likely to get better for quite some time.

Isn’t it, therefore, a great time to reset? To reset some of the regulatory and legislative excesses stitched together with little reflection during the crucible of the late, great credit crisis?  What appeared to make sense in the middle of that crisis simply doesn’t make a great deal of sense anymore and it’s time for a reset.   As John Maynard Keynes famously said, when the facts changed, he changed his mind.  Shouldn’t we?  It is the height of hubris and willful incuriousness to ignore four years of data and not recalibrate.

If we were to recalibrate, let’s think of some of the things we might rethink.Continue Reading Time for Regulatory Reset

Jens Weidmann, president of Deutsche Bundesbank, recently wrote a terrific piece in the Financial Times, making the point that the Faustian bargain between European sovereigns, their national banks, the ECB and EU policymakers to encourage European banks to gorge on sovereign debt may be politically attractive in the short run while being fundamentally a horrible idea. With a wink and nod, President Draghi of the ECB essentially told the world that the ECB would keep the European banks afloat. With that assurance in their pocket, and the gnomes of Basel III declaring sovereign debt riskless, requiring essentially no capital, the banks continue to buy their sovereign debt – and buy big. By doing so, the banks become enablers of bad fiscal policy, artificially lowering the risk premia on all risk assets (resulting in mispricing), and clogging their balance sheets with government IOUs. The result: The banks are less able to support the real economy.Continue Reading European Sovereign Debt and the Clogging of the Banking System

Here at Dechert, we have seen a slow but steady work stream over the past several years in assisting institutions in either buying or selling of pools of financial assets. Just recently, we advised Wells Fargo Bank in connection with its acquisition of a $4.5 billion performing pool of UK loans and the simultaneous financing of Lone Star’s acquisition of $1.5 billion NPL and SPL pool, all acquired from what had been Euro Hypo’s and now – Hypothekenbank Frankfurt. Needless to say, we would certainly love to see more.  Continue Reading The European Bank Loan Trade Is Not Yet Done

I told the Blog team that I had sworn off writing about Europe for a while; but really. The FT opinionized last week that the EU ministerial decision to agree on a standard “bail-in” to fix broken European banks was a good thing. The editorial ended with a ringing endorsement “something is, however, better than nothing.” Really? It reminds me of Wile E. Coyote bravely trying to use a handkerchief as a parachute as he falls off the butte, again. Beep, Beep.Continue Reading The Consequences of a Failed Banking Union

Among the more technical topics we cover in this Blog, we keep an eye on Europe as we fundamentally continue to worry that Europe’s disease could infect our markets. As I write this, Cyprus is trying to sort out the terms of the proposed EU bailout for the banking sector which is eight times the size of the GDP of the whole darn island. The US commodities and stock markets have fluttered in response and may continue to flutter for several days, but now a deal has been announced and the betting is Cyprus will drop out of the headlines and become yesterday’s news. We’ll be back to business with nary a backward glance at Europe; until next time.Continue Reading Cyprus: Not the Archduke Ferdinand Moment, This Time

The warm weather is not the only thing descending on New York City this week as CREFC hosts its annual Distressed Debt Summit at the New York Athletic Club overlooking Central Park. March in New York City is famous for the Big East Tournament (speaking of distressed…), St. Patrick’s Day parades and love blooming along with the flowers. But it won’t be all buzzer beaters, green beer, horse carriage rides and proposals in the park as industry leaders look to discuss the market trends and opportunities in the distressed debt market for 2013.Continue Reading Distressed Debt Conference in Bloom in NYC

I have written periodically in this Blog about my persistent concerns about the European economy and its capacity to negatively impact ours. I get wound up, then I get swayed by the majority views of the chattering class who gently explain I’m indulging in alarmist adolescent flights of fancy and I should leave the big issues to the smart people, e.g., the overwhelmingly Europhile policy glitterati.Continue Reading Black Swans in Camo: Continued Concern about the European Community

It’s been a while since we’ve visited Europe in this column, but events, or non-events, cry out for a fly-by. I am reminded of those months of September 1939 to April 1940 when the conflagration that was to be WWII was looming over the western world, yet, on the western front, no shots were fired. Last we wrote, we wondered how long the European community could avoid acknowledging the ultimate denouncement that its economic model of the past half century had failed and simply had to change radically. With sovereign debt continuing to grow and default threatened in Greece and, perhaps, elsewhere, a broad recession, many states with breathtaking levels of unemployment, broken banks, and growing civil unrest, where was the path to normalcy? How could that path not ultimately lead through the breakup of the common currency “as we know it” and to the restoration of national control over monetary policy? But over the past several months, a grand illusion of normalcy has been diligently constructed and nurtured across Europe. If things have not gone terribly well, please, don’t stare. And whatever you do, just don’t tell the European politicians.Continue Reading The Phony War