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Opinions and views from expert CFOZone members.

Tag >> Risk
Oct 15
2009

False alarm over the zone of insolvency

Posted by Ron F in RiskDealsCreditbankruptcy

Ron F

I've got to correct a piece I wrote a few weeks ago now that I've just come across a ruling by the Delaware Supreme Court. Sorry about that.

Essentially, the court in May 2007 said that directors cannot be sued for acting strictly on behalf of shareholders when a company enters the so-called "zone of insolvency," however that might be defined.

Oct 15
2009

Washington mistakes Wall Street for Main on derivatives

Posted by Ron F in RiskRegulationcredit default swapCreditBanks

Ron F

One of the more specious arguments made against derivatives regulation at yesterday's hearing of the House Financial Services Committee was that this would hurt companies' ability to get credit and manage their risks.

Several Republicans who made this argument went unchallenged, which prompts me to weigh in with a question: How many non-financial companies use derivatives to hedge?

Oct 15
2009

Courts continue to block foreclosures on securitized mortgages

Posted by Ron F in RiskDealsCreditBanking

Ron F

Another court, this one in Massachusetts, has ruled that banks can't foreclose on homes without title to the property, which, as we noted in an earlier post, mortgage securitization may put out of reach of lenders or at least into lengthy legal dispute.

The banks getting mortgages off of their books through this process evidently figured that defaults would not come back to bite them, though why exactly is unclear. According to the latest court ruling, securitization documents call for title to the property to be transferred along with the mortgage when it is packaged into a security.

Oct 09
2009

GIGO squared? Now there's a solution to the financial crisis

Posted by Ron F in RiskRegulationBanks

Ron F

I have to admit, a computer model that can do real-time analysis of the aggregate Value at Risk of every financial institution of any significance sounds pretty cool.

But somehow I think the idea misses the point. After all, if the banks' own models failed to show that what they were up to wasn't at all hunky dory, then how can adding that all together come any closer to the mark?

Oct 08
2009

Missing the point on derivatives regulation

Posted by Ron F in RiskRegulationcredit default swapBanks

Ron F

Yesterday's hearings on derivatives regulation were yet another Capitol Hill head-scratcher that leaves one depressed about the prospects for fixing the financial system.

As we've noted before, there's a simple solution for OTC derivatives that can't be cleared on exchanges. And that is to ban naked swaps.

Oct 07
2009

Back to the future of securitization

Posted by Ron F in RiskRegulationFederal ReserveFASBCreditBanksAccounting

Ron F

This analysis of problems in the securitization market ends up with the usual inadequate explanation for the basic issue confronting the financial system, i.e, "confidence," or rather the lack thereof.

As I reported in yesterday's piece on banks' off-balance-sheet vehicles known as qualified special purpose entities, the problem is that no one in a position of authority seems prepared to confront the question of how you establish confidence in a system that relies on opacity.

Oct 05
2009

Banks' PE bets, now federally guaranteed

Posted by Ron F in RiskRegulationGoldman SachsFedBanks

Ron F

So now taxpayers are on the hook for Goldman's merchant banking activities?

It's one thing to subsidize its proprietary trading operations. After all, we've been doing that since the Gramm-Leach-Bliley Act of 1999 did away with the distinction between investment and commercial banks. But it's quite another to cover Goldman's private equity bets.

Oct 02
2009

Time to get real about recovery

Posted by Ron F in RiskrecoveryrecessionFinanceFedcapital expendituresCapital

Ron F

This is about as succinct a diagnosis of our fundamental problem as I've seen, and pretty timely given growing concerns about the strength of whatever recovery is supposedly afoot.

In a nutshell, analyst David Merkel points out that it's one thing to raise the prices of financial assets, it's another to encourage new capital investment. And the difference explains why the Fed's successful efforts to provide liquidity to the markets will at best merely re-inflate an asset bubble.

Oct 02
2009

Forget Bernanke. Listen to Weber

Posted by Ron F in RiskRegulationfinancial crisisFederal ReserveeconomyBanks

Ron F

Finally, a central banker gets it, or at least shows that he does, in this recent interview with VoxEU.

The trouble is, Axel Weber is not American, but German. And the Fed does its own thing, at least for now.

Oct 02
2009

Step right up, folks: Bank assets, no downside

Posted by Ron F in RiskRegulationObama AdministrationBanksBank of America

Ron F
Three months after starting at long last to start selling, with much fanfare, the bad assets it took over from Bank of America, Citigroup and other troubled banks, the Treasury has two buyers that have come up with the minimum amount of capital required.

That's right, two, out of the nine that the Treasury said qualified in July.

And that's with the taxpayer taking all the downside.

Yet I distinctly remember Pimco's Bill Gross talking up the program on NPR when it was unveiled last winter, and how it was a "win-win" for taxpayers and investors alike.

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