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Introducing Amoral Hazard

A vigilant reader points out that the biggest threat to markets these days is not moral hazard, which has been embraced by everyone and their grandmothers. It is that pesky " A moral" version that is now raising eyebrows. To wit: Put in a sentence

The Collapse Of The Euro: Insights By Joseph Stiglitz And Hugh Hendry – Two Part BBC Miniseries

Must watch two part BBC series recapping recent events from the perspective of the other side of the pond, including some much needed "on location" reporting (as opposed to persistent theorizing of "what may happen"). The first part provides the background on the currency crisis and how hedge funds are profiting from shorting the euro. As a commentator points out, the dilemma is moral hazard or austerity measures

"Recapitalization Time" The Latest Conflicting Data On Greece

This latest on Greece, this time from Dow Jones. Why is Obama speaking about windmills as the future of global moral hazard, Larry Summers edition, is being decided in Berlin? Germany and other EU member states are weighing measures to help Greece climb out of its financial emergency and plan to discuss the matter this week at the European Commission, Germany's finance ministry said Tuesday.

S&P Revises Outlooks on Citigroup, Bank Of America To Negative From Stable

Citigroup downgrade highlights: We believe there is increased uncertainty about the U.S. government's willingness to provide additional extraordinary support to highly systemically important financial institutions in a way that will benefit debt holders

Contagion

From Foreign Exchange Research, Barclays Capital The key lesson from the ERM crisis of 1992 and the Asian crisis of 1997 is that contagion can emerge quickly and often in unpredictable ways. Unwinding of leveraged positions by distressed market participants, herding behaviour among investors, and loss of liquidity that gives way to general flight to quality can all lead to heightened correlations between markets and, in extremely circumstances, set off a self-filling crisis on a regional/global scale. There have been clear signs over the past week that the distress in the Greek government bond market is increasingly being felt in other euro area countries such as Spain and Portugal

Frontrunning: February 2

Tom Hoenig for Treasury ( Simon Johnson ) Moral hazard prompts TCW and AllianceBernstein to buy bank sub debt ( Bloomberg ) The dollar-alternative trade continues: commodities rise as AUD drops on no OZ hike ( Bloomberg ) A scoop of double dip ( Barrons ) iTraxx Fin widest to iTraxx Europe since Lehman ( Bloomberg ) Philippine bond sale fails for second time this year ( Bloomberg ) Swiss banks Achilles heel is workers selling data ( Bloomberg ) Germany may be willing to buy stolen Swiss bank account data ( Bloomberg ) Davos, the contrary indicator ( Slate ) Volcker rule unabridged ( MarketWatch ) Social Security could be next to need a bailout ( WaPo ) Anyone remember Great Atlantic & Pacific? Another horrendous idea by Burkle's retail team ( WSJ ) Banks ready to battle over Volcker rule ( Reuters )

Federal Reserve Moral Hazard Smoking Gun: In August 2008 Goldman Was Willing To Tear Up AIG Derivative Contracts, Offered To Take Haircut

As observant readers will recall, a week ago we pointed out a letter in which the New York Fed's Steven Manzari instructed AIG to stand down on all discussions with counterparties on "tearing up/unwinding CDS trades on the CDO portfolio." At the time we focused on the word " stand down " as an indication of the Fed's lead role in the process. At this point there is no doubt that the FRBNY, together with its law firm, Davis Polk, were in the pilot's seat during the entire AIG negotiation, and while Tim Geithner may not have been the responsible man for this, someone must have been - and for the record, our money is a double or nothing on recently promoted FRBNY Senior Vice President Sarah Dahlgren , who as of January 21 st is in charge of the Fed's Special Investments [AIG] Management Group. We sure hope Sarah gets the chance to recall her memories beginning in the fateful month of September 2008 when she became the person in charge of the FRBNY's AIG relationship.

Efficient Market Proponent Senator Kaufman Endorses Prop Trading Ban, 99 Other Senators Have No Idea What Prop Trading Is

Mr. President, I rise today in support of President Obama’s proposal to limit the proprietary trading activity of banks, ideas that have been developed by Paul Volcker, the former Federal Reserve Chairman and current chairman of President Obama’s Economic Recovery Advisory Board. Mr.

FRBNY President And Former Goldman Partner Dudley Discusses Politicization Of The Fed

The former Goldmanite discusses why the Fed will keep printing, printing, printing when the next leg of the Deferred Depression TM hits, until such time as the ink runs out. And now, in addition to the usual Mutual Assured Destruction observations on why an audit of the Fed will cripple the world, Dudley adds his perspective on why the Fed should become a uber-regulator: There are clear synergies between the supervisory process and the Federal Reserve's monetary policy and financial stability missions. The information we collect as part of the supervisory process gives us a front-line, real-time view of the state of the financial industry and broader economy.

Ten Questions For The Bankers

A terrific list of questions that the FCIC should ask banker executives, conceived by the trio of Eliot Spitzer, William Black and Frank Portnoy. 1