29 replies to this topic

[SemiBizz]

Attorneys General step up pursuit of wrongdoing on Wall Street

By Stephen Foley in New York

Published: 08 September 2007
Eliot Spitzer's successor as attorney general of New York is to emulate his predecessor's dogged pursuit of malfeasance on Wall Street, with an investigation of the credit rating agencies' role in inflating the bubble in the debt markets.

Standard & Poor's and Fitch have received subpoenas from Andrew Cuomo as part of an examination of the mortgage and debt market crisis – and pressure is rising on the agencies from several other quarters too.

The Securities & Exchange Commission confirmed yesterday that it has begun an investigation into the policies and procedures of the credit rating agencies, which grew fat during the credit boom, thanks to fees for rating more and more exotic debt instruments. Their certifications that many credit derivatives based on sub-prime mortgages were as safe as government bonds encouraged investors to buy them in record numbers, but confidence in their creditworthiness has since collapsed, demand has dried up and the agencies have downgraded at least a small proportion of the securities.

Ohio's attorney general, Marc Dann, is also looking at the ways that the rating agencies interacted with the big Wall Street banks who underwrote the sale of mortgage-backed securities and other credit derivatives. The powerful Senate banking committee has also signalled it will call the agencies to testify.

"The more we look at it, the more we realise that these firms are important," Mr Dann told The Wall Street Journal.

The three major credit rating agencies – S&P, Fitch and their rival Moody's – receive fees for certifying the creditworthiness of debt originated by the Wall Street banks. Regulators and politicians are concerned that this represents a conflict of interest, since investor demand is strongest for the highest-rated debt. As criticism mounted last week, S& P replaced its president, Kathleen Corbet, and yesterday the agencies said they would fully co-operate with regulators' requests for information.

Mr Spitzer was elected Governor of New York last year, partly as a result of the reputation he gained in his battles with Wall Street, particularly when he won multi-billion settlements from investment banks over conflicts of interests that arose as the dotcom boom turned to bust. Mr Cuomo's investigation into the mortgage market comes on top of recent campaigns against malpractice in the student loan and sub-prime credit card industries



http://news.independ...icle2941937.ece

[SemiBizz]

What went wrong - and right - for quants in August


The grim figures for August losses among some of the world’s biggest hedge funds prompts the FT to examine what went wrong - and right - among the computer-driven hedge funds, or “quants”. The results show that some funds recovered fully, while others are stuck with most of the losses from the appalling first 10 days of the month.
One of New York-based Tykhe Capital’s funds and two hedge funds from Goldman Sachs are down more than 20 per cent for August, investors said, while funds from San Francisco-based GMN Capital and Algert Coldiron Investors are down close to 20 per cent for the month. All were badly hit early in the month when their computers failed to anticipate the degree of overlap between their models, leading to heavy selling of stocks in which all had invested, notes the FT. The losses are widely expected to lead to big investor redemptions in the sector, and it appears that one of the funds – managed by GMN – has already suffered.

James Claus, who founded the fund after leaving London-based GSA Capital, reported to investors that his GMN Fund had $600m of assets in August, down from $1bn at the start of this year, after losing 19.1 per cent in the past month.

“There’s no doubt that the sector as a whole will suffer just as the convertibles sector suffered a few years ago,” one quantitative manager told the FT. “Investors will get out at just the wrong moment.”

The big unanswered question, says the FT, is whether investors will reject all quantitative equity funds, which use “black box” computer models to select stocks, even though many managed to claw back all their losses. In the flight from convertibles, the managers who stemmed losses during the rout of 2004-05 were hit with withdrawals almost as hard as poor performers, as investors in hedge funds shifted money to other strategies.

Paul Trickett, European head of investment consulting at Watson Wyatt, told the FT the boom in computer-driven hedge funds raised the risk of many using the same basic models, and so selecting the same stocks.

But some of the computer models bounced back strongly in August, including big names such as Jim Simons, the former mathematics professor who runs Renaissance Technologies; 32 Capital from Barclays Global Investors, part of the London bank; DE Shaw, part-owned by Lehman Brothers; and Highbridge Capital, owned by JPMorgan. Both Renaissance and DE Shaw are now raising new money.

A handful of other quant funds, including Sushil Wadhwani’s London-based Wadhwani Asset Management, which uses both macro and equity strategies, avoided the crisis altogether. Wadhwani ended the month down just 0.5 per cent, hurt by the move in the yen.



http://ftalphaville....ants-in-august/

[ogm]

What does CDO crisis have to do with stocks ? If anything its GOOD for stocks. Since money will stop flowing into CDO's

[SemiBizz]

What does CDO crisis have to do with stocks ?
If anything its GOOD for stocks. Since money will stop flowing into CDO's

Sure, but the market says otherwise...


http://bigcharts.mar...&mocktick=1.gif

We're going to see this low tested... plenty of time to lose more money on buying and holding stocks.

Edited by SemiBizz, 10 September 2007 - 11:33 AM.

[ogm]

The market is down 5% off the highs in the midsts of thick doom and gloom and screams about recession and impending global economic collapse. Thats what this whole crisis is worth.. 5%.

[SemiBizz]

Yup, it's a bagholder paradise... BUY BUY BUY. and you can buy even more for your money when we are down 20%... in the next couple of months... why the future is so bright I'm going to do my bit for the economy and go out and buy some sunglasses...

Edited by SemiBizz, 10 September 2007 - 11:43 AM.

[Tor]

I dont get it either. cdo's a few hedge funds. i dont see the link/connection. any views?

[SemiBizz]

I dont get it either. cdo's a few hedge funds. i dont see the link/connection. any views?

[rkd80]

semi, i may not always agree with your market views, but that is some funny stuff.

[linrom1]

What does CDO crisis have to do with stocks ?


If anything its GOOD for stocks. Since money will stop flowing into CDO's

CDOs represented credit flows that are now seized up and deemed largely worthless. It means that there is less overall liquidity for stocks since few are willing to accept CDOs as collateral for loans. Between CDOs illiquidity and yen carry trade slowdown, there is going to be a lot less funds available for Wall Street to jam stocks with. CDOs were accretive as far as liquidity was concerned as they were readily convertible and treated as money markets -----part of M2, M3. Of course, CDOs are now part of the Milky Way.

Edited by linrom1, 10 September 2007 - 12:13 PM.