Continuing my reading of the Nicky Marsh book.
In chapter four, Ms Marsh turns her attention to works she evidently considers not-very-literary, low brow potboilers. These are the finance world's equivalent of John Grisham or Tom Clancy.
She says that there was a "rash of novels" that applied thriller conventions to the world of finance not long after the arrest of Nick Leeson at Frankfurt Airport in March 1995.
The resulting novels seem to be read largely by people with connections to the finance industry themselves, and to be read as if they're in code, in an effort to dope out who or what is the story-behind-the-story. One such author, Paul Kilduff, posts appreciative reader e-mails on his website and Marsh quotes a bit of that.
"Is your story really based on true facts? If yes, could you indicate to me a web site where I could access the information you used to write your novel? All I recognized was the LTCM bankruptcy in the first part of the book."
His readers have an eye for detail, and want to be helpful, as shown by other examples Marsh quotes. "And in HK the main MTR interchange is Admiralty not Central...the DAX is not the name for the German Stock Exchange. It is the name for the German counterpart of the Dow Jones," and so forth.
If this makes any one curious to see that website, feel free.
Just Click Here.
Showing posts with label LTCM. Show all posts
Showing posts with label LTCM. Show all posts
29 January 2008
23 June 2007
Bankruptcy as education
The chapter 11 process is and should be a very public, very transparent one. There shouldn't be any secrets about what goes on when a company asks a court to protect it from its creditors, then re-structures its debt and in time, if all goes well, re-emerges from into the marketplace from outside the court's protective wings.
There shouldn't be any secrets for a couple of good reasons. The most obvious is that many of the parties interested in the proceedings are likely to get cheated to the extent back-room deals can be cut. They'll be cheated anyway, in a sense (it is the whole point of the process to cheat somebody!), but the distribution of the losses always shifts to the disadvantage of those who don't have the pull in those back rooms.
That, then, is enough: don't let the players step into the back rooms. Keep everything in the arena.
Still, there's another and a better reason for openness. Corporate bankruptcy proceedings can be a medium whence the public can learn about the nature of the business cycle, and can in time perhaps be roused to do something about these boom and busts that so dislocate our lives.
In boom time, when credit is easy, when the banks not only lower their interest rates and compete with each other but are eager to give away their money, then times are so good for business that managerial sloppiness goes unpunished. People who have no aptitude for business end up running large ones, and they can fool themselves into thinking they have a calling for it so long as the money stays easy.
The problem, of course, is that while they’re fooling themselves and working through these loans, other people come to depend on them: employees, suppliers, creditors. The marginal and the sloppy work themselves into the social fabric. The goodness of such ‘good times’ is deceiving, because rot is building up.
At some point the lenders have to stop being so generous. Whether this takes place with the prodding of a central bank is another question, but a turn will take place.
The more liquid institutions are among the first victims of a turn. As the expansion crawls to a stop, every trader, every brokers, everyone who hangs casually around an exchange building, knows the turn is coming. Somebody will call in a margin that will force somebody else to liquidate. Nobody wants to be the liquidate, so they all become very cautious at the same time, and as counter-parties they all become demanding at the same time.
Long-Term Capital Management goes down before Enron does. Why? Because Enron had assets other than cash – assets that couldn’t be marked immediately to market – pipelines and generators. For the same reason, Enron with its “asset lite” philosophy, had to seek bankruptcy protection before a necessarily asset-heavy firm such as Delphi did.
(Delphi is an auto parts manufacturer that sought chapter 11 refuge in the autumn of 2005 and remains there still.)
The bankruptcy system is the best public forum for the documentation of the boom-bust cycle. Immersion there in could teach people painlessly that the way up is the way down, that the cheap credit that allows for the build-up of the rot is the real cause of the subsequent collapse, even that “irrational enthusiasm” is a central banker’s term for the sort of dislocation that central banking can cause.
There shouldn't be any secrets for a couple of good reasons. The most obvious is that many of the parties interested in the proceedings are likely to get cheated to the extent back-room deals can be cut. They'll be cheated anyway, in a sense (it is the whole point of the process to cheat somebody!), but the distribution of the losses always shifts to the disadvantage of those who don't have the pull in those back rooms.
That, then, is enough: don't let the players step into the back rooms. Keep everything in the arena.
Still, there's another and a better reason for openness. Corporate bankruptcy proceedings can be a medium whence the public can learn about the nature of the business cycle, and can in time perhaps be roused to do something about these boom and busts that so dislocate our lives.
In boom time, when credit is easy, when the banks not only lower their interest rates and compete with each other but are eager to give away their money, then times are so good for business that managerial sloppiness goes unpunished. People who have no aptitude for business end up running large ones, and they can fool themselves into thinking they have a calling for it so long as the money stays easy.
The problem, of course, is that while they’re fooling themselves and working through these loans, other people come to depend on them: employees, suppliers, creditors. The marginal and the sloppy work themselves into the social fabric. The goodness of such ‘good times’ is deceiving, because rot is building up.
At some point the lenders have to stop being so generous. Whether this takes place with the prodding of a central bank is another question, but a turn will take place.
The more liquid institutions are among the first victims of a turn. As the expansion crawls to a stop, every trader, every brokers, everyone who hangs casually around an exchange building, knows the turn is coming. Somebody will call in a margin that will force somebody else to liquidate. Nobody wants to be the liquidate, so they all become very cautious at the same time, and as counter-parties they all become demanding at the same time.
Long-Term Capital Management goes down before Enron does. Why? Because Enron had assets other than cash – assets that couldn’t be marked immediately to market – pipelines and generators. For the same reason, Enron with its “asset lite” philosophy, had to seek bankruptcy protection before a necessarily asset-heavy firm such as Delphi did.
(Delphi is an auto parts manufacturer that sought chapter 11 refuge in the autumn of 2005 and remains there still.)
The bankruptcy system is the best public forum for the documentation of the boom-bust cycle. Immersion there in could teach people painlessly that the way up is the way down, that the cheap credit that allows for the build-up of the rot is the real cause of the subsequent collapse, even that “irrational enthusiasm” is a central banker’s term for the sort of dislocation that central banking can cause.
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