Thursday, March 5, 2009

Overallotment: March 5

  • Tomorrow: Payrolls (Cons: -650k) and Unemployment (7.9%)
  • FDIC desperate to bolster its reserves (Bloomberg)
  • Senate democrats short on votes for critical $410 billion bill (Reuters)
  • The deal that started the subprime bubble (NYT)
  • Spitzer back in D.C., this time on real business (WSJ)
  • Ackman to keep Target stake as investors have "very little to lose" (NYPost)
  • Bank of China hopes to sell $17.5 billion in bonds to replenish capital (Bloomberg)
  • 9 patients infected with Hep C at Manhattan dialysis clinic (NYT)
And lastly this blurb from Mike O'Rourke's letter today. Could be bad news for hybrid equity/credit hedge funds who were short fins:

Another important exchange today was between Senator Merkley and Eric Dinallo. Merkley asked if credit default swaps use the term “swap” as opposed to “insurance” in their name because it would mean the product would automatically fall under regulatory authority of the New York State Insurance Agency if the word “insurance” was used. Dinallo confirmed that to be true. Interestingly, Dinallo noted that credit default swaps would be prohibited in many states under the “Bucket shop laws” but the Commodity Futures and Modernization Act passed by Congress specifically exempt them. Dinallo referred to the credit default swaps as the “Great Enabler” of the financial meltdown. He also explained what would happen as a result of regulation of the swaps, “I think that there has been discussion -- but then what happens to them is they become very expensive to use as a hedging instrument because you have to capitalize them like an insurance product.” In that case, the obvious solution to this aspect of the mess is simply to call them insurance. Rightly or wrongly, do not be surprised if at some point, regulators start poking around looking for investors who paired short bets in the common shares with long bets on the CDS. Sphere: Related Content
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Anonymous said...

Anyone know if Buffett's deal lets Winkelried hedge his holdings in GS, even if his sales are limited to 10% of his stake?