Risk Rap

Rapping About a World at Risk

TPG and WaMu WHOO HOO

Its starting and bears watching.

The reconfiguration in the banking market.

In this corner TPG, a bulge bracket private equity firm. Still flush with cash from the halcyon days of rich valuations and unlimited liquidity is looking to acquire some cheap dollar denominated assets at bargain basement prices.

And in this corner WaMu, a revenue challenged regulatory capital depleted, NYSE listed, consumer banking company that took a bad hit in its mortgage business and desperately needs to shore up its sinking capital ratios with a massive capital infusion.

The tension between unregulated private equity and regulated banking entities will become a major challenge that regulators, law makers and market participants will have to confront in the new economic landscape.

Much of the Basel II discussion centered on prohibiting the arbitrage of regulatory and economic capital within a banks own capital structure.

Like hedge fund managers, private equity bankers are the best and the brightest. They may perceive a cellar price to acquire large pools of regulatory capital. Might this be a form of economic/regulatory capital arbitrage?

Risk: Banking, Market, Systemic, Regulatory

You Tube Video: Tom Waits, Step Right Up

April 10, 2008 Posted by | credit crisis, hedge funds, private equity | , , , , , | Leave a comment

Too Big to Fail

Mini Me is Big Time

Last weeks Senate Hearings on the credit market crisis and the role of the Fed in the bailout of Bear Stearns produced some dramatic headlines, noteworthy quotes and an opportunity for politicians, regulators and big swinging bankers to come together to shed some much needed transparency on the situation.

People are confused, uncertain and fearful. How can the boom go bust so quickly and how can the American economic colossus be brought to its knees in such a pedestrian fashion? The talk on Main Street is big banks vs. sub prime mortgage holders and the political calculus of which class of debtors in default pose the greatest threat to the economic prosperity and political stability of the nation.

The emerging economic environment will reify a new political landscape that can potentially broaden the divisions of a divided nation. The to big to fail rationalization of opening the Federal coffers to bailout failing capitalist enterprises is perceived by many taxpayers as the rich and powerful taking care of the rich and powerful by robbing the poor to pay the rich.

To paraphrase Senator Dodd, “we can’t be perceived as if we are privatizing profit and socializing risk.” It is dangerous to arbitrage the nations economic and political default probabilities. Who is too big to fail? That will be a question that the voters should have some say on come November but the discourse thus far has been confined to Senate chambers and the hard to locate CSPAN channel. It has yet to come to the fore in any meaningful way in the campaigns of the political candidates running for office in this year’s election.

Give the Fed high marks for acting. Give some of the Senators credit for understanding that the actions of the Fed help both large institutional banking interests and the little guy concerned about the reset rate on his ARM.

Shame on the politicians that are trying to make hay by sowing divisions among interest groups for political gain.

Risk: Political, Banking, Class, Market

You Tube Video: Peter Gabriel, Big Time

April 10, 2008 Posted by | Bear Stearns, credit crisis, pop | , , , , , , , , , , | Leave a comment