Rick Jones

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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

Two and a half years after Dodd-Frank and almost two years after the first hurriedly issued proposed rules, the six agencies (Department of Housing and Urban Development, Federal Deposit Insurance Corp., Federal Housing Finance Agency, Federal Reserve, Office of the Comptroller of the Currency, and the U.S. Securities and Exchange Commission) charged with creating risk retention architecture for commercial mortgage securitization have yet to issue a final rule, interim final rule or even a new proposed rule. Since Dodd-Frank provides a two year transition period after publication of a final Rule (or perhaps interim final rules), we might think, no Rule, no risk retention; all is good, no worries. Bad way to think about this. Something is coming out soon. It will be important. It may start affecting our business now. I don’t think we can or should be complacent. More on this later.

What we’re hearing from the panjandrums of the regulatory community is that the horrific concept known as premium capture cash reserve account (PCCRA) is finally cold and dead (although until I see sunlight shining in its grave and a stake in its heart, I won’t be sure), and that the regulation writing committee is settling on an alternative, focusing on risk retention to be satisfied through a B-piece buyer holding a horizontal 5% first-loss strip (the B piece fix was, of course, added to the statute by amendment by Senator Crapo, bless his heart). On this topic the statute said:Continue Reading It’s Time to Revisit Risk Retention

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

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