Rick Jones

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The election’s over and elections matter we’re told, albeit most of the denizens of Washington seem to have remained in their seats. The fiscal cliff awaits. We wait, with various levels of trepidation, for a workable compromise or, perhaps, to find out that life goes on regardless of what our elected leaders do. A bit of leadership, perhaps? One hopes that the Congress and the Senate, so mad at each other and so dug in on many issues, will, in the New Year, strive to find areas where compromise and commonality can be found. Indeed, whether the noise about principles and non-negotiable positions has content or is merely the expelling of political gasses, it’s pretty clear both parties better find some place to start agreeing and actually do something for the country if they really want to continue to be honored with the right to engage in public service; e.g., keep their rumps in their elected seats.Continue Reading A Christmas Wish: Fix Dodd-Frank (Just a Little)

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

Any number of banks in the United States have been courting, in a desultory sort of way, the covered bond. The Street has been scratching its head for many years trying to determine whether a U.S. covered bond could be done and, if so, whether it would be good. Congressman Garrett, who certainly can’t be faulted for lack of effort, has repeatedly introduced covered bond legislation, the most recent one of which was captioned the United States Covered Bond Act of 2011. As those with nothing better to do than follow the covered bond sausage-making know, an effective U.S. covered bond market really does require enabling legislation, which we do not have for a number of reasons, including the unremittant hostility of the FDIC.Continue Reading As Covered Bond Markets Retreat

I want to talk about structural complexity and innovation. Complexity has gotten a really bad name resulting from the collapse of many highly-structured transactions in the firestorm following the recession and Lehman’s collapse. That’s certainly an understandable reaction. Enormous losses were incurred on transactions barely understood by investors and perhaps by sponsors as well. And while I won’t go so far as to trot out the old saw, “Guns don’t kill people, people do,” the resulting hostility to complexity has conflated good complexity resulting from purpose-driven transaction structures and opaque, dysfunctional documentation and disclosure. The hostility toward complexity limits both risk mitigation and innovation, just at the time both are critically important to repair CRE debt capital markets.

Financial engineering is, in large measure, about risk transfer and the need to meet the needs of investors. It is a process of identifying risk, mitigating risk, and fine-tuning structure to do very specific things. Structures which can reduce deal risk and deliver solutions to very specific investor requirements will grow liquidity. With the growth of liquidity comes transactional efficiency and that way lies market growth.Continue Reading Complexity is Not the Enemy

Back to Europe and the Euro.

To misquote President Clinton, it’s the math, stupid. OK, that’s a bit of an exaggeration, as there are political prescriptions that could change the outcome of this tale of woe. As I write this, everyone continues to celebrate the result of the most recent Summit and the alleged breakthrough for the European Union and the Spanish and maybe Italian banks. The announcement that the European Financial Stability Facility, or the European Stability Mechanism, will actually lend directly to the banks in Spain and Italy was a bit of an overachievement for this body and, as I write this, stock markets are surging across the world on the news and spreads are coming in a smidge on the periphery. But, as usual, no details, and I’m not buying it. My bet is that the bloom will come off this rose just as it’s come off following other Summits, promising coordination of fiscal policies leading to a mutualization of the debt. Continue Reading It’s the Math, Stupid

Following up on last week’s cheerful exegesis into the data which is the dropping of the impending European banking and sovereign meltdown, I recommend Dechert’s Euro Crisis Website. It contains a series of Dechert OnPoints and White Papers providing in-depth analysis of the impact of Grexit and the rest on asset managers and other financial players. Shocking but true, it’s now time to say that every financial market participant needs to develop executable contingency plans for the possibility of one or more exits from the Eurozone. (See the very good article "Europe must prepare an emergency plan" by Robert Zoellick in the Financial Times on June 1 about lenders’ need to get ready to “break the glass” on contingency planning.) Maybe some sort of fix, temporary or otherwise, will be embraced at the edge of the precipice to keep Greece in the Eurozone and prevent contagion. Maybe we bump along and somehow oodles of liquidity, a promise of a bit of structural reform and a little growth will let us skate over the broken ice, but I think not. Grexit happens, several other countries will follow Greece out the door and the EU banking system will be profoundly damaged. A deep EU recession will result and international banking functionality will be impaired. (See the article "Banks Park Record Funds with ECB" by Todd Buell in the Wall Street Journal on January 5 on the rapid retreat of the interbank lending market.)Continue Reading The Eurozone: Opportunities During the Impending Troubles

So after another bad news week in Europe, I’m a bit gloomy about the future of the capital markets. As we try to run a business and help our clients, I’ve got this narrative running through my head about Europe. I keep running this movie back and forth in my head hoping it will help me tease out what will be in the last reel. Look, we try to make these blogs contain some bon mots of immediate utility. I’m not sure what follows has any immediate utility, but I hope someone will tell me what I’m missing here.Continue Reading ROME’S BURNING: WHAT AM I MISSING?