Category: Finance

  • Now that the housing bubble has burst, who’s to blame?

    Blame is flying in all directions: mortgage lenders had stopped bothering whether or not borrowers could repay as they were passing the buck to Wall Street anyway; Wall Street firms were using subprime mortgages of any denomination as innocuous stuffing in Collateralized Debt Obligations (CDOs); regulators failed to curb the worst forms of abuse –…

  • The smile in Black and Scholes

    This is a bit of a detective story, a bit of a puzzle. The method is archaeological.
    This morning a colleague of mine sends me an e-mail entitled “importance of correlations.” There are several attachments. One of them is an article by Don Chance entitled “Rethinking Implied Volatility” (*). In it, the author writes…

  • The Greenspan and Kennedy papers on Equity Extraction from Housing (1990-2006) – A graphic exposition

    The first Greenspan and Kennedy paper (*), published in 2005 provides figures about equity extraction in the US over the 1990 to 2005 period. In the first diagram, the numbers for cash-out extracted at the occasion of refinancing are shown along origination of Home Equity Loans and Lines of Credit. There is no essential difference…

  • Please keep quiet Mr. Greenspan!

    Poor Mr. Greenspan: can’t open his mouth without giving investors the heebie-jeebies!
    He promised he would be quiet, just like his predecessor Mr. Volcker was about monetary policy when he himself took over. Even when he only whispers, people pay a lot, a lot of attention, and go into a frenzy of wanting to…

  • Subprime, CDOs and the threat to home ownership

    In a well-documented recent paper (*), Joseph R. Mason of Drexel University and Joshua Rosner of Graham Fisher & Co. ask if a chain of events has not begun unfolding that will end up in a situation where funding for the mortgage industry is massively curtailed. In their paper, Mason and Rosner draw a parallel…

  • Where did the housing bubble come from?

    In today’s Wall Street Journal, Andy Laperrière, a managing director of the Washington office of the ISI Group, wrote a piece on the crisis in the mortgage industry, I wrote to the Journal’s editor, the following letter:

    In his “Mortgage Meltdown” (Wall Street Journal, March 21, 2007), Andy Laperrière assigns the residential real estate bubble…

  • Malaise in the subprime sector

    In today’s Wall Street Journal, Alex J. Pollock a former President and Chief Executive Officer of the Federal Home Loan Bank of Chicago wrote a piece on the subprime industry, I wrote to the Journal’s editor, the following letter:

    “In his “Credit Crack-Up” (March 12, 2007), Alex J. Pollock offers a perceptive summary of the…

  • The safest financial world of all

    A recurrent theme in Alan Greenspan’s speeches, either when he was head of the board of governors of the Fed or now in his capacity as an invited speaker, has been that the financial world has become in recent years a much more sturdy, much more robust and let’s say it, a safer place, because…