Explaining Southern California's economy

Was Crowell Weedon's misadventure with credit default swaps really that big a deal?

To go with India-society-books-politics,

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Ayn Rand is a heroine to some libertarians — and at least one former bond investor in L.A.

The L.A. Times has an interesting story today about Crowell, Weedon & Co., which reporter E. Scott Reckard characterizes as a "regional brokerage based in Los Angeles" that "has preached old-fashioned stock and bond picking to its clients since the depths of the Great Depression." The impression at the paper that Crowell Weedon is seriously old-school goes back a ways: Tom Petruno wrote about the firm in 2007, under the headline "They make money the old-fashioned way," a reference that anyone who paid attention to investment marketing in the late 1970s will get.

Here's what happened: In 2008, the firm's head of bond trading, Robert Gore, set up a sideline operation to play the housing downturn. Gore was a housing bear as early as 2006, and the LAT points to his website as proof. The trades he was running were proprietary, meaning the firm basically set him up with funds drawn from Crowell Weedon's own accounts to establish his positions — positions that used the now infamous derivatives known as credit default swaps to short mortgage-backed securities. 

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JPMorgan under investigation for manipulating California energy markets

Mark Lennihan/AP

JPMorgan, the largest bank in the United States, in under investigation by the federal government for manipulating energy markets in California and the Midwest.

JPMorgan Chase was the darling of the U.S. financial system after everything fell apart in 2008. The bank, now the country's largest, picked up a lot of respect for avoiding the high-risk game that took down Bear Stearns and Lehman Brothers and threatened many of the country's biggest banks, including Bank of America and Citigroup (in fact, it stepped up to buy Bear Stearns in an early effort by the government to stem the crisis).

Californians have gotten used to seeing the "Chase" logo because atfer JPMorgan took over bankrupty Washington Mutual in 2008, it changed hundreds of West Coast WaMu branches to Chase branches.

But things haven't been so rosy for JPMorgan of late. It's been dealing with a trading scandal that could wind up costing it $9 billion, in a worst case scenario. It's CEO, Jamie Dimon, has had to testify before Congress. And just last week, we learned that JPMorgan is being investigated by the Federal Energy Regulatory Commission (FERC), for "[manipulating] power markets in California and the Midwest, according to the New York Times.

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Quote of the Week: Greek debt crisis edition

Greece Faces Economic Collapse As Parties Dispute EU Finance Package

Vladimir Rys/Getty Images

He might not be worried about Greece's recent default and payout of credit default swaps. But some other people are.

I just discovered Tony Alfidi's blog and have been enjoying his uncensored views on a variety of tech and finance subjects. I agreed with him on Apple's mastery of planned obsolescence and now I'm tempted to agree with his verdict on credit default swaps (CDS) — a number of which just kicked in as Greece "defaulted" on some of its privately held sovereign dealt. 

Some people think that CDS, despite their role in the financial crisis (they brought down AIG), remain useful, as a means of hedging risk and as a relatively recent example of financial innovation that was sadly misused. 

Alfidi says un-uh:

I've always believed that credit default swaps are meaningless and even dangerous. [There's your Quote of the Week!] Banks and hedge funds use them to place directional bets with no regard for a counterparty's solvency. The European versions of AIG, whoever they are, can now breathe easier for a few weeks knowing they can get away with more uncapitalized CDS writing.

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The Euro rescue plan: A rundown of opinions

People walk by a National Bank of Greece

LOUISA GOULIAMAKI/AFP/Getty Images

People walk by a National Bank of Greece in Athens on October 27, 2011. Greece reacted with measured relief on Thursday after European leaders sealed a deal to contain the eurozone debt crisis that slashes the country's huge debt by nearly a third. LOUISA GOULIAMAKI/AFP/Getty Images

Has Europe finally solved its debt-crisis problem? Well, that depends on who you talk to. Yesterday, hot on the heels of the announcement that European financial leaders had labored into the wee hours to finally get their act together to rescue Greece and save the Euro, I heard an economist say she was pleased that Europe had finally agreed on a plan...to agree on a plan!

Yeah, not exactly a ringing endorsement of Europe's ability to right its listing ship of states.

Meanwhile, around the blogspshere, various voices weighed in. At Reuters, Felix Salmon took a deep dive into the matter of credit default swaps (CDS) on Greek debt (although it wasn't nearly as deep as some). You're not going to want to wade into this debate unless you're prepared to induce a pounding financial headache, but the topline summary is fairly simple.

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