Comments on: The Meltdown Put – Wall Street’s New Moral Hazard http://www.stantonchampion.com/2008/09/15/the-meltdown-put-wall-streets-new-moral-hazard/ Tue, 22 Dec 2009 04:17:57 -0500 http://wordpress.org/?v=2.9.2 hourly 1 By: AIG’s Meltdown Put | Stanton Champion http://www.stantonchampion.com/2008/09/15/the-meltdown-put-wall-streets-new-moral-hazard/comment-page-1/#comment-27546 AIG’s Meltdown Put | Stanton Champion Wed, 17 Sep 2008 21:35:38 +0000 http://www.stantonchampion.com/?p=319#comment-27546 [...] AIG bailout is another example of what I’ve started calling a Meltdown Put.  Their capacity for shredding the global financial markets has earned their shareholders $2 a [...] [...] AIG bailout is another example of what I’ve started calling a Meltdown Put.  Their capacity for shredding the global financial markets has earned their shareholders $2 a [...]

]]> By: Bret http://www.stantonchampion.com/2008/09/15/the-meltdown-put-wall-streets-new-moral-hazard/comment-page-1/#comment-27540 Bret Tue, 16 Sep 2008 12:42:46 +0000 http://www.stantonchampion.com/?p=319#comment-27540 I get the feeling unless Paulson sees another "Bear" balance sheet he's going to let them fail. I didn't see numbers on how wound up Bear was in derivatives until this article yesterday.... [quote: http://cnnmoney.mobi/money/business/company/detail/92809/2 ] Barry Ritholtz, CEO of Fusion IQ, said that Bear Stearns' holdings also posed a greater risk to the nation's financial institution than did Lehman's. He said Bear Stearns had $9 trillion worth of financial instruments known as derivatives, much of it shared with other financial institutions such as its eventual buyer, JPMorgan Chase. He said Lehman had about a tenth that much exposure. "Lehman was only incompetent enough to blow up and destroy themselves, where as Bear's degree of incompetence was enough to threaten the entire financial system," Ritholtz said.[/quote] Out of this I suspect we get new "well capitalized" rules and I say rules as I hope the financial industry will learn a lesson and self govern rather than have some new convoluted leverage law that the next generation of finance lawyers will look for a way around. I get the feeling unless Paulson sees another “Bear” balance sheet he’s going to let them fail. I didn’t see numbers on how wound up Bear was in derivatives until this article yesterday….

[quote: http://cnnmoney.mobi/money/business/company/detail/92809/2 ] Barry Ritholtz, CEO of Fusion IQ, said that Bear Stearns’ holdings also posed a greater risk to the nation’s financial institution than did Lehman’s. He said Bear Stearns had $9 trillion worth of financial instruments known as derivatives, much of it shared with other financial institutions such as its eventual buyer, JPMorgan Chase. He said Lehman had about a tenth that much exposure. “Lehman was only incompetent enough to blow up and destroy themselves, where as Bear’s degree of incompetence was enough to threaten the entire financial system,” Ritholtz said.[/quote]

Out of this I suspect we get new “well capitalized” rules and I say rules as I hope the financial industry will learn a lesson and self govern rather than have some new convoluted leverage law that the next generation of finance lawyers will look for a way around.

]]> By: Ben http://www.stantonchampion.com/2008/09/15/the-meltdown-put-wall-streets-new-moral-hazard/comment-page-1/#comment-27539 Ben Tue, 16 Sep 2008 11:28:46 +0000 http://www.stantonchampion.com/?p=319#comment-27539 I just read about another moral hazard that seems obvious now, but I had never thought about before. When a consumer is picking a savings account, they will naturally pick one with the highest interest. Since savings accounts are FDIC insured there is no risk to the consumer in picking a higher yielding account, but in order to offer these higher rates the bank is forced to take on higher risks. With the ease of opening an online savings account these days (E*Trade, HSBC Direct, ING Direct, etc.) there are consumers that are rate shopping and increasing pressure on banks to offer these high rates. I just read about another moral hazard that seems obvious now, but I had never thought about before. When a consumer is picking a savings account, they will naturally pick one with the highest interest. Since savings accounts are FDIC insured there is no risk to the consumer in picking a higher yielding account, but in order to offer these higher rates the bank is forced to take on higher risks. With the ease of opening an online savings account these days (E*Trade, HSBC Direct, ING Direct, etc.) there are consumers that are rate shopping and increasing pressure on banks to offer these high rates.

]]> By: Britton http://www.stantonchampion.com/2008/09/15/the-meltdown-put-wall-streets-new-moral-hazard/comment-page-1/#comment-27537 Britton Mon, 15 Sep 2008 20:03:46 +0000 http://www.stantonchampion.com/?p=319#comment-27537 I seem to recall vague rumblings from Bernanke's direction on this very issue. Isn't the Fed looking at concrete ways to avoid being put into this sort of situation in the future? I seem to recall vague rumblings from Bernanke’s direction on this very issue. Isn’t the Fed looking at concrete ways to avoid being put into this sort of situation in the future?

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