Some screenshots from the carnage out there today: WSJ NYT NYT Cramer's sell call

Lots of people are newly smart and chattering away about the essential stupidity of value-at-risk modeling. Oh, those dumb financial engineers, they keep saying, How stupid do you have to be to imagine that the real world would conform to a mere formula? Ho-ho. The trouble is, value-at-risk -- a statistical measure of financial losses your portfolio faces given various holdings and market conditions -- actually worked well for some time. It isn't that it ...

There is a true keeper of a gloating column in Monday's Wall Street Journal from an Australian journalist explaining how wonderful, sound, and profitable her country's banks are, and how Australians long ago figured out that not everyone needs a home, etc. etc. Really. That's fascinating. She should, me-thinks, pay a little more attention to the capital structure of her own banks. Sure, they carry AA ratings, which is nice, but ratings are made to ...

Nice, useful figure from The Deal on how modern finance worked to create the subprime mess, or at least how it worked up until there stop being a functioning capital market. More here.

Nice Bloomberg chart of growth in U.S. real estate lending among major U.S. banks. You get a pretty clear idea of how badly timed Wachovia's buy of lender Golden West turned out to be, and how big of an inflection point the event was in Wachovia's declining fortunes. [via Bloomberg]

Peter Wallison at AEI has out an attempted take-down of economist Paul Krugman ("Fannie, Freddie and You", 7/14/2008), and pretty much anyone else who thinks Freddie and Fannie's role in this crisis during the 2005-2007 period was irrelevant compared to private actors. It's provocative stuff, and reasonably nuanced. At the same time, Wallison introducesexpands a theory for why the two firms acted so destructively: While they were fighting for share, they were mostly trying to ...

Thought-provoking quote from the opening paragraphs of a new Gillian Tett piece on "murky finance" over at the Financial Times. A couple of years ago, a senior investment banker berated me for using the word “murky” to describe the world of structured finance. “It’s not opaque,” he said indignantly. “You can get plenty of information if you know where to look on a Bloomberg machine.” “But what about those people who don’t have a Bloomberg ...

An instant period piece, the first episode of Wall Street Warriors from 2006. Ouch.

Here is the quote of the day: ...we and other global firms have, for many years, urged the SEC to reform its net capital rule to allow for more efficient use of capital. This is the single most important factor in driving significant parts of our business offshore, so that our firms can remain competitive with our foreign competitors risk-based capital standards must become the norm. The SEC has made it clear that risk-based capital ...

A few people have sent over variants of this after my earlier post about hedge funds' cannibalism practices, so might as well post it. Here is a graph of the Goldman Sachs VIP index of most widely-held hedge fund positions as it has performed against the S&P 500 over the last few years, and then in the last three months. Think of the cross-over point at the beginning of September as hedgies getting a taste ...

In many ways, Citadel’s structure today is probably more akin to an investment bank such as Goldman Sachs than the average hedge fund on the street. -- Standard & Poor's, talking about hedge fund Citadel Investment With hedge funds getting absolutely hammered with poor performance this quarter, the above comparison is likely not going to be seen as helpful. Citadel is down 18% for the year, which is awful, but still trails soul-crushing declines at ...

So let's say that TARP passes todaythe TARP bailout package has passed the U.S. House of Representatives. I could be wrong, but that seems reasonably likely (although some disagree). What happens next? Credit My guess is that things settle down slightly in the credit markets, but that spreads remain gigantic, with destructive rates to the best borrowers, virtually zero lending to the worst, and interbank rates in nosebleed territory. The Fed will respond with more ...

New Greenwich Associates survey out on how credit market problems are hitting companies of all sizes, both in terms of their ability to get capital and in their economic outlook: Forty-five percent of large U.S. companies say their access to commercial paper markets has decreased as a result of the current market turmoil. More than 70% of companies say pricing on commercial paper programs has increased, including 22% that report their pricing has increased “significantly.” ...

I've been saying this privately for some time, but only now finally getting around to saying it here: In many ways, the banking crisis of 1872/73, less so the bank failures around the Great Depression, is the right mental model in which to think about the current crisis. The context: A banking crisis in Europe took hold in 1872 after a mortgage lending boom, one in which house prices climbed endlessly, houses became loan collateral, ...

So let's say that TARP passes today. I could be wrong, but that seems reasonably likely (although some disagree). What happens next? Credit My guess is that things settle down slightly in the credit markets, but that spreads remain gigantic, with destructive rates to the best borrowers, virtually zero lending to the worst, and interbank rates in nosebleed territory. The Fed will respond with more rate cuts, taking things to Japanese zero rate territory and ...

Quote of the day goes to my friends at CNBC who have a story up about consumers struggling to get credit. It contains the following quote of Jim Bianco dismissing the current Paulson plan as being unhealthily similar to a rejected proposal Paulson made last year: "I didn't think that bill they were voting on yesterday was going to do much good for anything. Yes, it would have given a psychological boost--the problem is the ...

Great slide deck on making sense of the mortgage meltdown from a seminar today at the Milken Institute in Los Angeles. They always have the best and most data-rich slides, bar none. Required viewing, even if the page images via Slideshare are too small. Press the easel button in the viewer to blow it to full screen, or download the original. Making Sense of the Mortgage Meltdown View SlideShare presentation or Upload your own. (tags: ...

Some fairly staggering numbers in the September car sales data by brand. For the first time in recent memory, every single brand sold in the U.S. saw a decline in the month. Every one. The best performing brand, Audi, was still down 5% year-over-year. And the worst performing brand? That has to be Hummer, with volumes off 54.8%, thus marking the sixth straight month of at least 50% sales volume declines at the hulking-stupid-gas-guzzler maker. ...

A few people have asked via email why I haven't posted about the Senate's passage tonight of the Paulson plan, V2.217. The honest answer: I just don't care. Sorry, I don't. I'm exhausted from this crap, and I like the Paulson plan less and less every time I see it. That is doubly true in its current incarnation loaded with laminated arrows, or whatever the most deranged clause is in the revenue bill to which ...

If I read one more mark-to-market screed, I'm going to spit. The gist: An accounting change called FASB 157 pushed companies to mark their balance sheet items to market, and that's generally a good thing. It means that we have some sense of what toxic paper, real estate, collectibles, etc., on companies' balance sheets are worth, as opposed to what companies say they are worth. Trouble is, that only works when there is a market. ...