Delta-Northwest merger

The Delta-Northwest merger was approved this week. Some of you may remember that the Edward Bastian the president and CFO of the combined airline is an SBU graduate who was the keynote speaker at this spring's graduation. (now if he would only give BonaResponds some discounts!)From BusinessWeek:"In their Oct. 29 statement, DOJ antitrust lawyers offered not just their tacit approval, but they

Accounting Changes Help Deutsche Bank Avoid Loss - NYTimes.com

Continuing the accounting issue from last article, so much for German conservatism. Again from the NY Times: Accounting Changes Help Deutsche Bank Avoid Loss - NYTimes.com: "Deutsche made a pretax profit of 93 million euros ($118.5 million) in the third quarter, a result only possible because of changed accounting rules. These allowed it to cut write-downs by more than 800 million euros to 1.2

A Question for A.I.G. - Where Did the Cash Go? - NYTimes.com

From the NY Times Article A Question for A.I.G. - Where Did the Cash Go? - NYTimes.com: "The American International Group is rapidly running through $123 billion in emergency lending provided by the Federal Reserve, raising questions about how a company claiming to be solvent in September could have developed such a big hole by October.....Mr. Vickrey says he believes A.I.G. must have already

Video of Leo Melamed

Previously we had the text of the Melamed speech, but here is the actual video of the speech from Vanderbilt.

Bentley University Class Creates Local Microfinance Fund - MarketWatch

Congrats to Roy Wiggins and his class. What a great idea and learning experience that will help many. Please keep us posted onto the success. I would love to do the same here. Any donors?Bentley University Class Creates Local Microfinance Fund - MarketWatch: "An honors finance class at Bentley University has paved the way for an innovative financing initiative: a domestic microcredit

Do we have a new Orange County?

Bloomberg.com: Exclusive FBI Proble of JPMorgan Fees focuses on Swaps...: "Nowhere have JPMorgan's derivative deals wreaked more havoc than in Jefferson County, Alabama, home of Birmingham, the state's largest city. A combination of soaring rates on its bonds and interest-rate swaps is threatening the county with the biggest municipal bankruptcy since Orange County, California's default in 1994."

Structured finance, the rise and fall

Bloomberg.com: Exclusive: "Evil Wall Street Exports Boomed With `Fools' Born to Buy Debt" "The bundling of consumer loans and home mortgages into packages of securities -- a process known as securitization -- was the biggest U.S. export business of the 21st century. More than $27 trillion of these securities have been sold since 2001, according to the Securities Industry Financial Markets

-GM/Chrysler seek $10 bln govt aid for merger - sources | Deals | Private Capital | Reuters

UPDATE 2-GM/Chrysler seek $10 bln govt aid for merger - sources | Deals | Private Capital | Reuters: "General Motors Corp (GM.N: Quote, Profile, Research, Stock Buzz) and Cerberus Capital Management have asked the U.S. government for around $10 billion in an unprecedented rescue package to support a merger between GM and Chrysler LLC, two sources with direct knowledge of the talks said on

Shouldn't Bonuses be tied to performance?

Really? I find this very hard to believe. Yes they will get bonuses, but if the bonus is tied at all to performance, you have to expect they will be well down from last year. Moreover, even for political reasons, if I were on the board of any of these firms I would be arguing for lower pay since high bonuses in the midst of a market collapse (which at least in part caused by bankers) will

Citadel Chief Denies Rumors of Trouble - NYTimes.com

In the Journal of Behavorial Finance 2004 Allan Kimmel wrote the following about financial rumors:"In the contemporary financial marketplace, the consequences of speculation and decision making based on unfounded assertions and false rumors can be especially potent and undeniably dangerous."Which is what makes the following NY Times story even more worrisome: the mere fact of the rumors coming

IPO VIEW-History no guide for IPO turnaround timing | Deals | IPOs | Reuters

IPO VIEW-History no guide for IPO turnaround timing | Deals | IPOs | Reuters: "The market for initial public offerings is facing its worst drought in decades, and history gives few clues as to when the market will turn around.The IPO market has typically reopened fairly soon after a slumping stock market begins rising again. But this time there will need to be an acceptance of sharply lower

NY TimesWeekend Business Podcast

Want to learn while you do other things such as laundry, household chores, driving? Listen to the NY Times Weekend Business Podcast. It gives a nice recap of the week, plus some investment advice from John Bogle (the founder of Vanguard).

At least some people know how to hedge!

Great story and had finance and world series ties. Cashing in on hope - MLB - Yahoo! Sports: "Marger, a lifelong St. Petersburg resident and season-ticket holder since the team’s inception in 1998, stands to win $25,000 on a $100 bet he placed at Bally’s last November during a quick swing through Las Vegas.“I figured they are my team, so it was worth $100,” he said. “I thought about it when I got

Deal Heavyweights on the Future of M&A - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times

Wouldn't you have loved to be there for this one?Deal Heavyweights on the Future of M&A - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times: "The panelists — Stephen Friedman, the retired chairman of Goldman Sachs and the current Chairman of the Federal Reserve Bank of New York; Martin Lipton, the founding partner of the law firm Wachtell, Lipton, Rosen & Katz; and

Greenspan - Bad data hurt Wall Street computer models - NYTimes.com

Greenspan - Bad data hurt Wall Street computer models - NYTimes.com: "Greenspan told the committee. 'The whole intellectual edifice, however, collapsed in the summer of last year because the data inputted into the risk management models generally covered only the past two decades a period of euphoria.'He added that if the risk models also had been built to include 'historic periods of stress,

Emanuel Derman's Blog: A speech by Leo Melamed, reproduced here with his permission

Emanuel Derman's Blog: A speech by Leo Melamed, reproduced here with his permission: "Financial Innovation Conference Vanderbilt University October 16, 2008 NashvilleThe Law of Selective Gravity By Leo MelamedThe first course:"There is no way to sugar coat it: Current economic conditions have the earmarks not only of a severe U.S. recession but—dare I say it—the potential of a global depression.

Robert Shiller's Financial Markets Course at Yale - Spring 2008 - Video and Audio | Finance Focus | News & Blogs | MoneyScience

WOW! Now and then you get an email that changes your whole day for the better. That was what I just got from Jacob over at MoneyScience.com. WOW. I definitely know what I will be doing! Watching and listening. It does not et much better. The opportunity to listen in on one of the most respected FinanceProfessors in the world!From MoneyScience:Robert Shiller's Financial Markets Course at

Hedge fund withdrawls, leverage, and future job prospects

Citadel Hit Hard as Hedge Fund Withdrawals Continue - Seeking Alpha: "The chief executive of a leading alternative investment manager said he expected the hedge fund industry to shrink by 50 per cent in coming months – with half the decline coming from withdrawals and half coming from investment losses.Even if that prophecy only becomes partially true, that is a massive amount of deleveraging,

Congratulations to Eugene Fama!

While I still think he should have won the Nobel Prize for Economics, at least this will soothe the pain.FT.com / Business education - Chicago professor wins Onassis Prize: "Chicago finance professor Eugene Fama is the inaugural winner of the $250,000 Onassis Prize, which is awarded every two years by Cass Business School in London to acknowledge academic work in finance, shipping and trade"

In Hedging you win some and you lose some.

Southwest's infatuation with fuel hedges backfires - MarketWatch: "Given oil's relentless ascent, investors have been dumbfounded that Southwest's hedging program wasn't universally used by other airlines, who unfailingly blame their weak financial performance in part on rising fuel costs.Then came the crash. Oil is now trading at half the price it fetched just three months ago. Suddenly,

Financial Crisis Provides Fertile Ground for Boom in Lawsuits - NYTimes.com

Gee, who could have seen this coming? ;)Financial Crisis Provides Fertile Ground for Boom in Lawsuits - NYTimes.com: "Accusations of executive excess, accounting fraud and lack of disclosure are far more credible now, since bad bets on real estate and securities linked to home loans have caused some of the biggest and most prestigious financial firms in the country — Lehman Brothers, the American

Car dealers demand more cash for down payments - USATODAY.com

When articles say that banks will quit lending it is really too simple. Banks are in the business of lending and they will not all stop, but what they will do is to cut back and not lend as much. Here is an example of how this is affecting car loans.Car dealers demand more cash for down payments - USATODAY.com: "Tighter credit standards are forcing many car buyers to put down more cash up front

SSRN-Audit Firm Tenure and the Equity Risk Premium by Jeff Boone, Inder Khurana, K. Raman

While accounting based, it had financial ramifications and deals more with governance, so I going to mention this here. I am working on a paper about auditors and in some background reading just stumbled upon this paper by Boone, Khurana, and Raman. Quite interesting. The abstract does a wonderful job catching the essence of the paper:SSRN-Audit Firm Tenure and the Equity Risk Premium by Jeff

General Growth, Mall Owner, May Be Facing a Sale - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times

Want a case study on how the credit crunch can affect non financial firms? Consider General Growth a REIT that financed its acquisitions with debt but now is in financial difficulty of its own.General Growth, Mall Owner, May Be Facing a Sale - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times:"...financing strategy, with debt equal to more than 70 percent of its

Banks’ Bailout Unlikely to Crimp Executive Pay - NYTimes.com

Kevin Murphy is one of my all time favorite professors, so when he gets quoted in the NY Times, it is definitely going to make the blog!Banks’ Bailout Unlikely to Crimp Executive Pay - NYTimes.com: "“The Treasury’s plan seeks to take aim at the eight-figure pay packages given to Wall Street executives that have enraged so many Americans in the wake of the country’s financial collapse.....Congress

Black Swans

Bloomberg.com: Worldwide: "Investors advised by ``Black Swan'' author Nassim Taleb have gained 50 percent or more this year as his strategies for navigating big swings in share prices paid off amid the worst stock market in seven decades."and later:"``I am very sad to be vindicated,'' Taleb said today in an interview in London. ``I don't care about the money. We're proud we protected our

Academic perspective? or incessant rambling?

Trying to step back and answer some of the questions people have been asking over the past few days in particular. They will not be particularly formal and clearly I have no idea of anything in the future, but since I keep getting asked, at least this MAY cut down on that.1. Why should the government do anything? They don't when other companies go out of business.A. Well, maybe the government

No Shelter in This Storm - Floyd Norris Blog - NYTimes.com

Floyd Norris in the NY Times gives some perspective on enormity of this collapse. Amazing. Just a few of the countries (he lists nearly 50 countries):No Shelter in This Storm - Floyd Norris Blog - NYTimes.com: "Singapore, down 45%India, down 58%Indonesia, down 50%Malaysia, down 39%New Zealand, down 46%Philippines, down 50%Pakistan, down 49%Vietnam, down 61%"And in a related piece, the BBC

Iceland suspends stock trading, creates new bank: Financial News - Yahoo! Finance

Iceland suspends stock trading, creates new bank: Financial News - Yahoo! Finance: "Iceland suspended trading on its stock exchange for two days and took control of the country's largest bank -- the third to be placed under its protective umbrella -- on Thursday as it grappled with a banking crisis that is threatening to engulf the entire country"A few days ago a friend emailed and asked about

Presidential Address by Ken French

In spite of the market collapse that is going on, classes can not devote all of our time to it. So here is a video of Ken French's 2008 presidential address to the AFA. Presidential Address: "2008 Presidential Address: The Cost of Active Investingby Kenneth R. French"It is really good. The paper which he talks about was mentioned back in March. Here is the blog article about it from then.

SNL on the Bailout

Thanks to Financial Rounds for some humor.

Coordinated rate cut plus In praise of Bernanke

Of course the Fed Cut rates early this AM. As part of a multi-central bank move to stem the spillover from the liquidity induced meltdown. Most would agree that such a cut was only a matter of time and definitely needed (I would have gone a full point at least), butFirst the News: From NY Times."In an extraordinary move that reflects the gravity of the financial turmoil, the world’s central

Housing Pain Gauge: Nearly 1 in 6 Owners 'Under Water' - WSJ.com

Housing Pain Gauge: Nearly 1 in 6 Owners 'Under Water' - WSJ.com: "The relentless slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth, raising the possibility of a rise in defaults -- the very misfortune that touched off the credit crisis last year.The result of homeowners being 'under water' is more pressure on an economy that is

How to Unfreeze Bank Lending - WSJ.com

The WSJ proposes a plan whereby bank debt would be guaranteed for a period of time. One of the better ideas out there, but still worry about the moral hazard problem. Is 10% enough? See below.How to Unfreeze Bank Lending - WSJ.com: "...the Federal Reserve should guarantee most of the short-term borrowing of well-capitalized banks for a small fee.....Here's how the guarantee might be structured

Yahoo! Personal Finance

Yahoo! Personal Finance: "With more super-sized banks in business, fewer failures could still dump a big bill on the Federal Deposit Insurance Corp.... The FDIC's potential liability is rising under a provision of the bailout that increases the deposit insurance limit to $250,000 per account, up from $100,000.Using statistics from the S&L crisis as a guide, Mason estimates total deposits in banks

Investing myths laid bare by this bear market

Not sure how much of the whole article is worthwhile, but a few of the so-called myths are interesting:TheStar.com | Business | Investing myths laid bare by this bear market:The article starts off with a section on Cramer talking about his recommending Wachovia just before it collapsed (uh, remember Bear?), but in this case he blamed the CEO who Cramer believed did not have the correct info. It

Salon Radio: Notre Dame finance professor Richard Sheehan - Glenn Greenwald - Salon.com

On my way to do a radio interview on the economy and I did some Google searches to see what other finance professors had been saying. Here is one from a while ago with Richard Sheehan of Notre Dame. Sheehan is a critic (or at least was as of Sept. 23) of the bailout. Salon Radio: Notre Dame finance professor Richard Sheehan - Glenn Greenwald - Salon.com: "The question that I would love to hear

Fed to buy massive amounts of short-term debts: Financial News - Yahoo! Finance

Fed to buy massive amounts of short-term debts: Financial News - Yahoo! Finance: "The Federal Reserve, invoking Depression-era power under 'unusual and exigent circumstances,' will buy 'commercial paper,' a short-term financing mechanism that many companies rely on to finance their day-to-day operations, such as purchasing supplies or making payrolls."

Bloomberg.com: Worldwide

Wow. This is about as interesting as Money and Banking can get! But fortunately this is really interesting! Stealth easing. Nice new term!Bloomberg.com: Worldwide: "The central bank used power granted under last week's financial-rescue legislation to effectively set a floor under its main interest rate that's lower than the 2 percent target set by policy makers last month. The Fed

Strategies for a liquidity crisis. | Banking & Finance > Financial Markets & Investing from AllBusiness.com

Wow.....great article. Published 10 months ago, but as relevant now as then.Strategies for a liquidity crisis. | Banking & Finance > Financial Markets & Investing from AllBusiness.com: "The longer-term danger from a liquidity crisis is a prolonged deleveraging or debt-deflation process such as the U.S. experienced in the 1929-1933 Depression, or that Japan experienced for more than a decade from

Is this a repeat of Japan 1989?

We talked about the similarities in class today. Here is an article that looks at the US now and Japan in the late 1980s, early 1990s. It is an eerily similar scenario.TheStar.com | Business | Can U.S. escape zombie economy's clutch?: "Banks were lending money and there was almost this excessive euphoria and panic that if you didn't buy a home you would be priced out of the market forever."

Warren Buffett interview

Charlie Rose interviewed Warren Buffett on his GE purchase, the current "meltdown", and more. Sort of long, but well worth watching! He calls this the "Economic Pearl Harbor".

Buffett to Invest Billion in G.E. - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times

GE has been busy strengthening their balance sheet (i.e. delevering). Whether this is just prudent planning for volatile times, or a signal that they fear we have not seen the worst yet, is anyone's guess, but parrots a phrase my finance students heard nearly everywhere we went on our recent NYC trip: "cash is king".In GE's case, they made two sales. The first was a sale of perpetual preferred

Bank Limits Fund Access by Colleges, Inciting Fears - NYTimes.com

Getting closer to home. Just another example of how contagion rears its ugly head and problems can spread quickly through the global economy. Bank Limits Fund Access by Colleges, Inciting Fears - NYTimes.com: "In a move suggesting how the credit crisis could disrupt American higher education, Wachovia Bank has limited the access of nearly 1,000 colleges to $9.3 billion the bank has held for them