Receiving Wide Coverage ...
Maiden’s Suitors: Following the Citi-Goldman-Credit Suisse team-up, two more consortiums have been formed to bid for the complex securities from the New York Fed’s Maiden Lane III portfolio, the papers report. The second alliance consists of Bank of America Merrill Lynch (no comma missing there; that mouthful is just one dealer), Morgan Stanley and Nomura. The third partnership is the most interesting since it’s made up of the two investment banks that are said to have a special pricing advantage: Barclays and Deutsche Bank. The European duo reportedly intends to unwind the CDOs and sell off the underlying bonds for a profit, a play that would be difficult or at least expensive for any other bidders since Deutsche already owns other pieces of the same CDOs and Barclays is the interest rate swap counterparty on the transactions (hence both firms must be bought out to collapse the deals). Old-school CitiGoldSuisse, on the other hand, plans to just resell the CDOs in their current form to clients if it wins the auction. Most interestingly, BankAmeriMorgNom wants to repackage the CDOs into new securities with higher ratings, according to the FT. (CDOs of other CDOs? Ratings arbitrage? Where have we heard that one before?) The Journal, and to a lesser extent the Times, emphasize the “how far we’ve come” angle: The reason the New York Fed owns the Maiden Lane assets in the first place is that it took the stuff off the hands of investment banks in the fall of 2008 when AIG, which had insured the then-radioactive paper, was wobbling. Yet the same bonds are now in hot demand on the Street. Financial Times, Wall Street Journal, New York Times
Innovators: Peter Thiel, who founded PayPal, is teaching a course on start-ups at Stanford, and one of his students, who apparently is the world’s greatest note-taker, has posted a reconstruction of one of the class discussions on his Tumblr. David Brooks summarizes Thiel’s ideas in his Times column this week, but really, just read the lecture. It’s a fascinating, provocative reconsideration of widely held assumptions about the desirability of competition and the undesirability of monopolies. Don’t be put off by the annoying Ivy League snob talk at the beginning; it gets better soon afterward, and gave us a new perspective on tech success stories like eBay (which bought PayPal from Thiel in 2002), Google, Facebook, and Amazon. (Speaking of Stanford and start-ups, this week’s New Yorker includes a piece by Ken Auletta about the university’s close ties to Silicon Valley, which we haven’t read yet but must be good.) Turning to today’s would-be disruptors in financial services, a group of prominent VCs are investing $500,000 in a start-up called CoinLab. Doesn’t sound like a lot of money, but it’s noteworthy because CoinLab’s business model involves Bitcoin, the decentralized digital currency that Sen. Chuck Schumer thinks is a threat to society. Nothing obviously illicit about CoinLab, though. As we understand the model from reading the write-ups in Forbes and Ars Technica, CoinLab generates revenue for online gaming companies, by essentially renting players’ computers to “mine” Bitcoins in the background while games are being played. The players get virtual goodies as a reward for the use of their machines’ processing power, and CoinLab converts the newly minted Bitcoins to dollars or euros, takes a cut and passes on the rest to the gaming company. Well, it’s easier to understand than a CDO-squared at least. Don’t worry, after today we promise to shut up about Bitcoin for at least a month.
Fed Prescriptions: Fed Chairman Bernanke said it would be “reckless” to up the dose on the IV pumping money into that stable-but-critical patient known as our economy, the Times reports. The FOMC reiterated that the tube will stay in our collective arm until at least 2014, though, and expanding the Fed’s MBS and Treasury purchases remains under discussion. In an op-ed in the Journal, George Melloan argues in favor of a Republican bill that would end the Fed’s dual mandate and limit its mission to maintaining price stability, rather than trying to also maintain full employment.
New York Times
An article looks at recent efforts by large and midsize banks (U.S. Bank, Wells Fargo, Regions) to court low-income customers with products like short-term, small-dollar loans, and emphasizes the high fees and potential regulatory backlash. The piece gave us déjà vu — where did we read about this trend before? Oh right, in American Banker, five months ago.