Wandering around Financial Cities

Yesterday I went to an alumni event in my home city.  It was great to meet some friends there.

Here in Hong Kong, as told by my friend working in corporate finance area, the market is picking up in a seemingly unimaginable pace.  Just one or two months ago, big investment banks were still firing.  Now, few IPO are lining up in their pipelines.  The recovery is quite unexpected in terms of speed and magnitude.

Though there are of course people who are very cautious about that, including this author.  In fact, I am rather suspicious.  My reason is rather simple.  Look at Deutsche Bank (DB)Annual report of 2008.  Just a simple arithmetic would tell you that the Asset-to-equity ratio of Deutsche Bank is well above 70x, and it has been at that level long before the crisis.  Obviously, some banks have never quite begun their process of deleveraging and repairing of the balance sheet.

Yes, the worst might be behind us.  Though I don't really think that we will see a very good time ahead...

With HSBC (HSBA.L, 0005.HK) and Barclays (BARC.L) announcing better-than-expected profit figures, does this indicate that the crisis is over?  In my opinion, the worst may have been behind us.  Credit spread has narrowed, and stock markets around the world have rebounded quite significantly.  People are indeed more optimistic in general.  However, I don't expect the economy to be growing as fast as it has been.

US is running a record deficit, and borrowing an unprecedented amount of money in order to stimulate the economy.  The Federal Reserve has pumped in so much money into the economy to revive it.  Yes, indeed they seem to have suceeded, but it risks future inflation.

In particular, I expect commodities prices to be rising to a record high level in the future 3 - 5 years.

Obama to Consider Impact of Bonus Tax on Credit, Gibbs Says

The financial-services industry is warning that the move to impose a steep tax on bonuses at companies that receive taxpayer aid may cause some banks to exit the Troubled Asset Relief Program before their competitors are healthy enough to do so, risking a new freeze of the nation’s credit markets. 

 

Citigroup, Bank of America, JPMorgan Criticize Limits

Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co., recipients of more than $100 billion in U.S. rescue funds, criticized congressional proposals to tax Wall Street bonuses. 

 

Bernanke says Fed has exit strategy from credit policy

Federal Reserve Chairman Ben Bernanke on Friday said the Fed's buying of longer-dated U.S. Treasuries would "taper off" when the economy no longer needed help, allowing the Fed to cease its emergency support. 

 

Banker fury over tax ‘witch-hunt’

Bankers on Wall Street and in Europe have struck back against moves by US lawmakers to slap punitive taxes on bonuses paid to high earners at bailed-out institutions.

Swiss QE, déjà vu

So Switzerland’s starting quantitative easing? 

 

Ask Warren - Complete Transcript

This is the complete transcript of Warren Buffett's appearances on CNBC's Squawk Box on Monday, March 9, 2009. 

 

Why letting Lehman go did crush the financial markets

For some time now, the folks over at Clusterstock - notably John Carney - have led a challenge to a particularly virulent piece of received wisdom: that the failure of Lehman was necessarily an inflection point that took the severity of the financial crisis to a whole new level. 

 

The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong- John B. Taylor

This paper is an empirical investigation of the role of government actions and interventions in the financial crisis that flared up in August 2007. It integrates and summarizes several ongoing empirical research projects with the aim of learning from past policy and thereby improving future policy. The evidence is presented in a series of charts which are backed up by statistical analysis in these research projects.