State Street and Merrill Lynch Losses Show the Lack of Transparency Posted by Leo M. Tilman, February 15th, 2009, 12:48pm
Some Wall Street executives have long likened their jobs to those of dentists who “tap” and “poke” at complex trades or esoteric holdings. Such outdated risk management tools tend to perpetuate delusions, leading to inevitable sad endings. State Street and Merrill Lynch are cases in point.
Morgan Stanley Seizes the Opportunity Amid the Crisis Posted by Leo M. Tilman, January 19th, 2009, 12:56pm
Having weathered the brush with financial ruin last year, Morgan Stanley appears to be actually gaining from the current financial crisis. The firm is doing so by radically transforming its business model — very much in the spirit of Financial Darwinism.
Icelandâs Role in the 2007-2008 Financial Crisis Posted by Leo M. Tilman, December 29th, 2008, 8:16pm
What do subprime mortgages, structured investment vehicles, CDOs, and the country of Iceland have in common? In the prelude to the ongoing financial crisis, they all served as powerful agents that helped wind up the worldwide spring of leverage to an unprecedented extent. Moreover, their respective roles in that vicious circle of risk-taking were surprisingly similar, all related to one of the most notorious investment construct and pieces of the Wall Street jargon â the carry trade.
Goldman Sachs & Morgan Stanley Take Alternative Routes to Retail Banking Posted by Leo M. Tilman, December 27th, 2008, 5:14pm
The recent conversion of Goldman Sachs and Morgan Stanley into bank holding companies was more than just a necessary means of getting access to Federal funding. It was an acknowledgement that the business model of independent investment banks was no longer viable. Now, both companies are focusing on retail deposits â and taking very different routes to the destination, very much in the spirit of Financial Darwinism.
Blackstone Joins the âPro-Abolishmentâ Camp Posted by Leo M. Tilman, November 13th, 2008, 11:31am
Last Thursday, Blackstone Group â the worldâs largest private equity firm â reported a loss of over $500 million, or 44 cents per share. In a now-familiar pattern, this loss posed a stark contract to its profit of 21 cents a year earlier and was significantly underestimated by equity analystsâ forecasts. Interestingly, in the prelude to the earnings announcement, Blackstoneâs CEO proposed remedies for the ongoing financial crisis, including the abolishment of mark-to-market accounting.
Lessons from the Goldman Sachs and Morgan Stanley Conversions Posted by Herb Addison, Jon Leaf, Leo M. Tilman, November 5th, 2008, 6:17pm
In American cinema, media, and popular opinion, the job of an investment banker has always been viewed as incomparably more glamorous than that of a commercial banker. Investment banks were portrayed to be on the forefront of innovation, complexity, and risk-taking. Commercial banks, on the other hand, projected a much more subdued and routine-driven image. The GS and MS conversions into bank holding companies shed new light on the long-standing debate.
The Evolutionary Angle Is Not Acknowledged Posted by Leo M. Tilman, October 29th, 2008, 9:37am
Compensation of Wall Street executives has been raising eyebrows for some time. So, when Dick Fuld, Lehman Brothersâ CEO, had to defend the fairness of his payouts in a painful congressional testimony, he seemed well-positioned to become a poster child of the excesses of the Golden Age. Unfortunately, attempts to prevent “unnecessary and excessive risks” by curbing executive pay are unlikely to succeed: many executives whose institutions suffered catastrophic losses or ruin in 2007-2008 were victims of financial natural selection, not greed.
The Government (& the Media) Got It Wrong Posted by Leo M. Tilman, October 29th, 2008, 9:14am
There is little doubt that the nationalization of government sponsored enterprises, Fannie Mae and Freddie Mac, in September was a major contributor to the escalation of the credit crisis to its most violent stage yet. While their debt holders appeased, investors in their preferred and common stocks did not fare nearly as well. The damage resulting from the nationalization could be seen on multiple fronts, yet the mainstream mediaâs focus was misdirected throughout.