Skin in the game set to get burned?
This Bloomberg piece does an excellent job of explaining how some investment firms are getting around the Dodd-Frank rule that required them to keep at least a small slice of the loans they originate (aka: skin in the game). The article also does a great job of explaining how the nature of collateralized loan obligations (CLOs) helped them survive the financial crisis relatively unscathed.
“CLO boosters say their market was the least in need of fixing. It was one of the few types of securitized debt to emerge from the crisis largely unscathed. That’s because their products are simpler than the CDOs of the mortgage boom. They’re backed by corporate debt instead of difficult-to-value mortgage bonds. And the company loans are usually the first in line to get repaid when a company goes bust. That, they say, gives CLO investors a lot of cushion to weather the next wave of defaults.”
But then the article describes how the creators of today’s CLOs are ignoring the lessons of the past and stealing a page from the creators of collaterized debt obligation, which were obliterated during the crisis.
“The question is what you think of financial engineering — how much energy you want the financial community to put into repackaging and repackaging and repackaging,” said Mark Adelson, a consultant and former chief credit officer at S&P Global Ratings. “You can’t hold it against the bankers for doing something legally to make money. But it’s chasing piles of money around in a circle and some of the activity doesn’t amount to anything more than that.”
Yep, you can call that a warning about the CLO market.
The Kansas Plan
As the battle over tax reform continues to get revved up, remember the cautionary tale of Kansas. The state is reeling from a tax concept that has been tried multiple times … and failed multiple times. Yet no one ever wants to declare it dead. And despite columns like this one, it continues to be the most under-the-radar story in the whole debate.
Can you name the biggest bank in the world?
Sure, most people know the biggest banks in the world according to assets (ICBC) and market capitalization (JPMorgan Chase), but what about according to employee headcount? I thought it was ICBC, which means I was wrong.
The plot thickens for Qatar’s financial hub.
Oil supplies “trapped” at sea.
Is the bell about to toll for Barclays?