24 Feb

Posted at 23:01h in NRSRO

R&R has 8 out of the 10 required letters for NRSRO designation. The Office of Credit Ratings (OCR) at the SEC only considers one valid. A key area of disagreement is whether our valuations, calculated directly from our ratings, deserve to be considered "nationally recognized...

29 Dec

Posted at 18:18h in Human Capital
The morning of September 5, 1995, I was reading the Chinese paper in my kitchen in Hong Kong. This was the second day of the Fourth Annual Conference of Women in Beijing. The opening events were front page news. And this was not unusual for the Chinese press, to be giving extensive coverage of a global event staged for the first time in Beijing. But, I was stunned.

26 Dec

Posted at 14:25h in Film Fundamentals
Ted Hope is a visionary film producer but anyone who talks about 75 or 100 bad things in the Indie Film Biz (today's blog) or any other industry makes me feel hopeless. For one thing, I only love good films. I don't make them. If I don't know how to make them, I certainly don't know how to unmake what doesn't work. Unless those things happen to intersect with my world, finance. Then, it's much easier. In finance there is only one problem: valuation. And only one reason why valuation becomes skewed: asymmetries of power or information, which, in the long run, are the same thing.

23 Dec

Posted at 15:28h in Credit Spectrum
Luigi Zingales teaches finance at Chicago Booth. It is not exactly a secret that Glenn Hubbard was his research collaborator in the run up to the presidential election, or that Zingales was positioning himself for an economic advisory role for Romney before he lost the election. Nevertheless, he's a lot smarter than Hubbard, and seems sincere. Right before the election, he went on a speaking tour to promote his book, A Capitalism for the People. I read it after attending one of his speaking events for Booth alums in NYC. In my opinion, it is the best of the worst of Chicago thinking. What is good and true in Zingales’ book is his discussion of how power interests have corrupted our market economy. I particularly liked his analysis of why anti-trust law is important in the chapter “Crony Capitalism American style.” Not that it enforces the laws of micro-economics and keeps marginal pricing competitive, but that it allows firms to grow to be mega firms who can bend the state to their will. His observation is subtle, astute and hits the mark. The poverty of his analysis shows up on p. 156 in his explanation of why competition does not cure predatory lending: most people do not pay attention to their finances, he says. From there, his argument takes a “right turn.”

21 Dec

Posted at 11:06h in NRSRO

President and CEO of the Philadelphia FRB Charles Plosser hits the nail on the head in his column in Mortgage Orb when he points out that Fed policy is weakening the U.S. economy. He runs through the litany of measures, "liquidity" provision, quantitative easing, asset...

18 Dec

Posted at 20:52h in Credit Spectrum

I am responding to Susan Saulny's article about homelessness and joblessness, a topic very close to my heart. R&R Consulting is willing to teach any jobless college graduate how to do structured finance the right way (ie, to grow jobs and avoid another Crisis) who is...

12 Dec

Posted at 11:21h in China
For 11 years between 1976 and 1998, I worked in Chinese-speaking Asia. Many of my deeper insights into the dark side of human nature came from my experiences there. Not because Chinese society (in its many forms) is darker than American society, but because the darkness is in plain view. It is not a taboo. Chinese matter-of-factness also makes some conversations easier. In the most awkward of moments one can always agree that things are indeed 很复杂, very complicated, and gloss over the unspeakable. One need not parse exactly who or what is complicated. Last Thursday morning (2012 1206) I was asked to talk to senior-level officials from the PRC Ministry of Industry and Information (MIIT) about whether our post-Crisis financial reforms can power up the real economy. With responsibility for regulating and developing telecommunications and the digital economy and promoting the national knowledge economy, these delegates came with a fairly well-developed point of view about the efficacy of our reforms (negative). They came to hear the thinking of U.S. academics. Nominally I am an academic, an Adjunct Associate Professor of Finance at Hong Kong University of Science and Technology. But that is not why I was on their agenda. In the '80s and '90s, I worked with Chinese economic reformists; knowledge of the long and winding road to marketizing the Chinese economy gives my presentations a certain caché. Here were my thoughts:
  1. The main point of our reforms is a renewed focus on financial system design. It may work out all right but in the short run, most measures are weak.
  2. A solid debt capital market architecture has three interlocked cornerstones:
    1. Well-articulated market infrastructure, where information parallels the flow of capital
    2. A consensus theory of value that allows people to debate risk and value with the same set of meanings without stifling independent thought
    3. A public, unified, consistent set of benchmarks on which to convert valuation to wholesale quality grades, also known as a credit rating scale.
  3. Our fractured financial regulatory systems--the de jure ones to be sure but also the de facto system that keeps credit ratings separate from pricing, and from benchmarks of intrinsic cash value separate--gave rise to the Credit Crisis.

31 Oct

Posted at 16:05h in Outside Looking In
At the end of October, 2012, executive recruiter Emerson Nagel and I were emailing each other about her current risk management job openings when she casually let it drop she'd be putting on a Halloween party (she lives in Mexico) for 250 kids in the neighborhood. 250 kids!!! I was stunned, not to mention impressed, and said so. She wrote back with a description so charming, so filled with generosity and imagination, that I asked her permission to blog it: "These are all kids from our neighborhood, mostly from families that have very little, and they really seem to have fun with it, though it's quite chaotic. Over the years we've made 9 fair-type games: piranha tank grab-bag, pumpkin toss, that kind of thing....

23 Oct

Posted at 16:39h in Credit Spectrum
In my presentation to NYSSA last Friday, I posed the question:
  • Are you playing Wall Street's game
  • Or is it playing yours?
The bittersweet truth is, Wall Street is itself a kind of infinite game but many games played on the Street are high stakes, finite games that turn people into unemployment statistics. To have success on Wall Street or anywhere else, it is important to stay in the game, no matter what. This is one of the first lessons I learned as a card-counter on the floor of the Chicago Board of Trade....