Deutsche Bank - They think its all over.....
Discussion
Derek Chevalier said:
Harris_I said:
I come back to my earlier point: it is the nature of money that lies at the root of the previous financial crisis.
I would say politicians/central bankers were mostly to blame.sidicks said:
Harris_I said:
Given that this is a car forum, I actually think it is more constructive if we "Janet & John" the thread. (Nice turn of phrase, BTW, I think I will nick it).
This phrase arises from the characters in primary school reading books from a few decades ago!Harris_I said:
sidicks said:
Harris_I said:
Given that this is a car forum, I actually think it is more constructive if we "Janet & John" the thread. (Nice turn of phrase, BTW, I think I will nick it).
This phrase arises from the characters in primary school reading books from a few decades ago!No offence was intended.
sidicks said:
Harris_I said:
sidicks said:
Harris_I said:
Given that this is a car forum, I actually think it is more constructive if we "Janet & John" the thread. (Nice turn of phrase, BTW, I think I will nick it).
This phrase arises from the characters in primary school reading books from a few decades ago!No offence was intended.
Derek Chevalier said:
DB high point for 5Y CDS was spike at tail end of 2011.
Of the back of the Eurozone debt crisis? Any number needs context. My point was (in my follow up mail) was that DBs CDS spread was higher earlier this year than on Sept 30th. DBs problem is a future one - "IF" the EC implements IFRS9 and changes to LLPs. If that happens, it will be most Eurozone banks down the swanney.Harris_I said:
Lots of good stuff....
In case anyone is interested in further reading, the concept of money as a commodity out of which we may create more financial instruments has been commented about for millennia. Start with Aristotle and move on to the 11th century philosopher, Al Ghazali. Some of what the latter commented on is quite extraordinary and prescient if anyone has an interest in the history of money. He specifically talked about the real economy vs financial economy. (As an aside, you might also discover that Aquinas "borrowed" a lot from Ghazali; some of Aquinas' work seems to be a direct translation).
Or for a simpler read, try the anthropologist David Graeber. Before the bankers blow a gasket, yes he's the guy who fronted the Occupy Wall St movement but all the more reason for bankers to understand what makes the guy tick. His book Debt: The First 5000 Years is an excellent and easy read.
I love a good read, thanks!In case anyone is interested in further reading, the concept of money as a commodity out of which we may create more financial instruments has been commented about for millennia. Start with Aristotle and move on to the 11th century philosopher, Al Ghazali. Some of what the latter commented on is quite extraordinary and prescient if anyone has an interest in the history of money. He specifically talked about the real economy vs financial economy. (As an aside, you might also discover that Aquinas "borrowed" a lot from Ghazali; some of Aquinas' work seems to be a direct translation).
Or for a simpler read, try the anthropologist David Graeber. Before the bankers blow a gasket, yes he's the guy who fronted the Occupy Wall St movement but all the more reason for bankers to understand what makes the guy tick. His book Debt: The First 5000 Years is an excellent and easy read.
I tried earlier to explain the main functions of banks (outside trading & safekeeping)
- Balance sheet extension (credit)
- Maturity Transformation
Even if banks match funded NMDs into Mortgages there resides significant market, liquidity & credit risk. Multiply this up by trillions, and its easy to see why notional's traded are so large - often hedges, but actual balance sheet impact can be tiny +/-'ve MtM; with a lot of collaterilisation given.
Edited by stongle on Tuesday 4th October 12:37
I feel like I should know the answer to this but why is it that if a competitor fails in any other business then effectively it's an opportunity for a business in the same line of work to increase it's market share, turnover and ultimately profitability, but when it's banks/banking it sounds like it's expected that it's the start of the deck of cards falling and the potential end or certainly very harsh times for all the other similar businesses and in fact everyone!
There is a possible domino effect down to suppliers in a normal business collapse but that can go down as a supplier being too reliant on one customer (a classic business risk) but there is not a competitor risk is there?
This is what makes the banking sector feel a bit like an interlinked untouchable gang, so separate company's but at risk from competitor failure and hence sort of "in it together" it's slightly sensationalising it but it's borne out in the "to big to fail" line that I believe even insiders are using, isn't it?
There is a possible domino effect down to suppliers in a normal business collapse but that can go down as a supplier being too reliant on one customer (a classic business risk) but there is not a competitor risk is there?
This is what makes the banking sector feel a bit like an interlinked untouchable gang, so separate company's but at risk from competitor failure and hence sort of "in it together" it's slightly sensationalising it but it's borne out in the "to big to fail" line that I believe even insiders are using, isn't it?
Scootersp said:
I feel like I should know the answer to this but why is it that if a competitor fails in any other business then effectively it's an opportunity for a business in the same line of work to increase it's market share, turnover and ultimately profitability, but when it's banks/banking it sounds like it's expected that it's the start of the deck of cards falling and the potential end or certainly very harsh times for all the other similar businesses and in fact everyone!
There is a possible domino effect down to suppliers in a normal business collapse but that can go down as a supplier being too reliant on one customer (a classic business risk) but there is not a competitor risk is there?
This is what makes the banking sector feel a bit like an interlinked untouchable gang, so separate company's but at risk from competitor failure and hence sort of "in it together" it's slightly sensationalising it but it's borne out in the "to big to fail" line that I believe even insiders are using, isn't it?
Too big to fail isn’t desirable for a bank. It increases regulatory scrutiny; potentially to the point you become a utility (and profit goes out the window). Sure it’s an argument that perhaps banks should be a utility to the “real” economy; but that’s another thread.There is a possible domino effect down to suppliers in a normal business collapse but that can go down as a supplier being too reliant on one customer (a classic business risk) but there is not a competitor risk is there?
This is what makes the banking sector feel a bit like an interlinked untouchable gang, so separate company's but at risk from competitor failure and hence sort of "in it together" it's slightly sensationalising it but it's borne out in the "to big to fail" line that I believe even insiders are using, isn't it?
Banking’s problem is the inter-connectedness of the industry. Banks have by various means been able to create credit and increase balance sheets to each other (interbank funding and maturity transformation) and the wider economy (desirable for Monetary policy). The problem has become so much leverage has been constructed it’s difficult to know whom owes who & when. This gets more complicated when banks and non-banks deal with each other as regulatory oversight is missing (shadow banking). Each day the assets and liabilities of banks are churning over and over as banks optimise their investments and cash needs. This daily churn or ”rolling” of assets and liabilities means that “if” a bank goes under contagion can ripple up the system from the point of failure. Lehman was a classic example of this. (19th Sept 2008 we were all sitting in the bar looking at the S&P and whether MS & Goldman’s would go). The resultant asset fire sale as banks sought to liquidate Lehman’s collateral was epic; and tipped stock markets down globally (had Yen40bn of Nikkei225 sell orders in before Starbucks had opened). The only stuff that didn’t get flipped was toxic piles of ABS no-one wanted to price. Anyway, getting misty.
It’s easy to research how Lehman went under – reliance on short term funding (too much carry trading); opacity of collateral chains and SPVs (funding via shadow banking); repackaging dodgy housing debts despite ratings, pre-default haircut ramping (other banks knew blood was in the water so increased haircut demands on loans) etc etc.
Whilst the causes were identified, and even the high level solutions easy to identify; implementation is still on going. The fact that the politicians then get involved in protectionist can kicking, selectively implementing rules to protect national / European interest (European Commission is a classic for this, lowering capital standards, removing solvency buffers, possible kicking IFRS9 into orbit etc); it’s not (just) the banks that are the problems but the politicians looking to save their skins… possibly.
stongle said:
The resultant asset fire sale as banks sought to liquidate Lehman’s collateral was epic
For an easy and entertaining intro into the characters behind the investment banking industry, I found the movie Margin Call to be close to reality and something I found myself identifying with in places. Be interested in what you thought of it. A tad simplified for digestibility, but a fair summary of a day (and night) in the life of the financial crisis, I thought.Worst movie on the subject: Too Big to Fail. Jeez, that was tediously hard work. A lot of people seemed to like it though, so I appear to be in a minority.
Harris_I said:
For an easy and entertaining intro into the characters behind the investment banking industry, I found the movie Margin Call to be close to reality and something I found myself identifying with in places. Be interested in what you thought of it. A tad simplified for digestibility, but a fair summary of a day (and night) in the life of the financial crisis, I thought.
Worst movie on the subject: Too Big to Fail. Jeez, that was tediously hard work. A lot of people seemed to like it though, so I appear to be in a minority.
The film or Sept 15th? Of the later here's some ramblings.Worst movie on the subject: Too Big to Fail. Jeez, that was tediously hard work. A lot of people seemed to like it though, so I appear to be in a minority.
I had got married 3 weeks earlier, so 15th Sept was my first day back in the office. Being first day back from trooping around Italy then the US for 3 weeks (not bothering to read a newspaper or do anything bar eat, drink and sit by various pools). It come as something as a shock when my Blackberry started ringing at 3 a.m. and told to get my “F’ing lazy a$$ into the office”. Told that Lehman had gone t*ts up and accusations of living under a rock. All hopes of trudging in late all bleary eyed were swiftly vanquished!
Upon arriving at work, lots of head scratching was on-going as WTF to do (this is at trader level). Upper mgmt. were wanting answers but it was in danger of being a huge circle jerk. As we were in the Securities Finance area; it should have been apparent what to do (and I was advocating hitting the big red sell button ASAP) – but it soon become clear that no one had any idea how to close out a collateralised trade, legal were strangely (or possibly too busy) to answer any calls, and time pressure was mounting. In fact no-one knew what entities were in default. Anyway, in the absence of Command and Control, we made the decision to liquidate all Collateral received with Lehman’s. The big Red button was found and we sold positions at a speed akin to air evacuating a punctured spaceship.
We went early, and probably saved ourselves some pain; it looked like a clusterf**k at the time as no one had thought to shut down payments to Lehman till late morning; so wires were still going out (epic, epic fail of operational risk)– DOH! So total loss on that.
After toting up defaulted loans vs collateral proceeds we found we had several $100s of million excess (resultant of aggressive Haircuts), in effect a liability to the Lehman estate. This was quite a hard concept for upper management to grasp; and we spent many months arguing that legally this was NOT trading P&L and that recognition of it might give us a future problem (greed and PV’ing everything knows no bounds). Sure enough this become a legal battleground that may still be raging (I was still getting called to meetings on this last year).
Whilst we were handing out a lot of backslaps and the talk of nipping up the Griffin for a sneaky pint and ladies of horizontal refreshment or rather of the pole before the US opened, it was a good day we’re out; possibly with several hundred mil of windfall P&L (we’d even worked out how to arbitrage the closeout FX rates for currency conversion which was a real $ 4m gain), winner winner! It soon become apparent that whilst we had pulled a blinder and the nature of Equity markets and deep liquidity pools makes collateral liquidation easy - albeit prone to Firesales. It would be much worse today, you’d need to pull all algo’s out, even the S&P500 is sensitive to a $500m dump (digressed). However our Fixed Income and in particular Credit team was having a bit of a bad day (to put it mildly). Unable to get prices on a lot of bonds taken as collateral, nor liquidity to sell a lot of it – how could they value their positions? At that time no-one knew the recovery rate (or what that term was) on CDO squared, squared (or even assets in it), in fact the names of the SPVs involved were often hilarious reading like a Dulux paint chart or animal biscuits (Silver Panther, Blue Titan, Magnolia B, Leopard, RBS even had one called Groundhog!). Collateral book values were marked to zero, some of the books with Lehman’s “Special” Financing Vehicles (where you structure CDOs, ABS etc) were MtM down more than $0.5bn (actually Mickey Mouse compared to the spanking on Porsche and VW shares we got a few weeks later)
Lap dancing tokens revoked.
The following days were rocky, and it actually took us 4-5months to totally value the books and work out our NET exposure to the Lehman’s group. NET it was actually quite small overall, but that didn’t stop the liquidators trying to get back all the liabilities (so our several hundred million in haircuts) and screw us on the losses. It’s a great study on shadow banking at least!
It also uncovered lots of new risk types – Cliff, Rollover and Firesale; and unleashed acronym hell; not to mention new micro industries and wheezes to internally tax desks (the gift of CVA has morphed into xVAs and new ways to pay for quants).
Very probably the industry got the kicking (in some respects) it deserved; but they were not solely culpable. Politicians in particular must take the blame, as should buy-side / asset manager firms. Allowing stocks to be lent to cover short selling “might” help stocks find realistic levels; but it’s also like curry to pi$$head to certain Funds (and that’s before they engage in yield enhancement strategies!)
Those were the days, eh!
I meant the film was tediously hard work, haha! 
But that was an entertaining read nevertheless.
I weirdly tend to enjoy debating the names of SPVs. Not a very efficient use of time, I admit. Currently we are running through Bond movies but once we run out I think I may morph this into Aston Martin paint colours (since they seem to overlap with Bond)...
But that was an entertaining read nevertheless.I weirdly tend to enjoy debating the names of SPVs. Not a very efficient use of time, I admit. Currently we are running through Bond movies but once we run out I think I may morph this into Aston Martin paint colours (since they seem to overlap with Bond)...
Shnozz said:
Fascinating read that Stongle.
As for this "no one had thought to shut down payments to Lehman till late morning; so wires were still going out (epic, epic fail of operational risk)– DOH! So total loss on that"
Incredible!
http://www.telegraph.co.uk/finance/3043319/KfW-chi...As for this "no one had thought to shut down payments to Lehman till late morning; so wires were still going out (epic, epic fail of operational risk)– DOH! So total loss on that"
Incredible!
Harris_I said:
For an easy and entertaining intro into the characters behind the investment banking industry, I found the movie Margin Call to be close to reality and something I found myself identifying with in places. Be interested in what you thought of it. A tad simplified for digestibility, but a fair summary of a day (and night) in the life of the financial crisis, I thought.
Worst movie on the subject: Too Big to Fail. Jeez, that was tediously hard work. A lot of people seemed to like it though, so I appear to be in a minority.
Agree about margin call, intentionally or not, they captured the atmosphere of the final days of Lehman really well... Also agree about the trudgefest that was Too Big to Fail, although Sorkins book of the same name is excellent if also harder going than others. Also worth watching (or reading) is much more palatable The Big Short which focuses more on the MBS/CDO issues.Worst movie on the subject: Too Big to Fail. Jeez, that was tediously hard work. A lot of people seemed to like it though, so I appear to be in a minority.
stongle said:
The film or Sept 15th? Of the later here's some ramblings...
Wonderfully engaging post. Thank you.fblm said:
Also worth watching (or reading) is much more palatable The Big Short which focuses more on the MBS/CDO issues.
Even people who had no real clue or interest about the GFC have watched and learned from that film. IMHO, Christian Bale and Steve Carrel are absolutely fantastic in their respective roles and the story really does come to life in the film. Gassing Station | News, Politics & Economics | Top of Page | What's New | My Stuff