Hedging the End of Finance

May 14, 2008 in capitalizing, counting, economizing, performing
Tags: banking, banks, capitalism, cdo, cdos, credit, crisis, crunch, debt, derivatives, finance, insurance, liquidity, lrb, mackenzie, money, mortgage, portfolio, rating, securities, sociology, subprime

This recent LRB piece by Donald MacKenzie is really worthwhile reading. Apart from providing a nicely pedagogical explanation of what credit derivatives and asset-backed securities do, it exposes some most curious features of contemporary financial capitalism: it’s about how serious financiers might be about the end of finance.

The Fault of Everybody

February 3, 2008 in economizing
Tags: credit, economics, fico, finance, mortgage, performativity, rating, reflexivity, sociology, sts, subprime

It’s very relieving that financiers found out that flaws in the prediction of credit default rates were homeowners’ fault. All came from the fact that people cheated, actually:

“In particular, it seems that mathematical models used to predict future default rates, based on past patterns of losses, have gone wrong because they did not adjust to reflect shifts in household behaviour. (…) The issue at stake revolves around so-called delinquency rates, the proportion of people who fall behind on their debt repayments. When American households have faced hard times in previous decades, they tended to default on unsecured loans such as credit cards and car loans first – and stopped paying their mortgage only as a last resort. However, in the last couple of years households have become delinquent on their mortgages much faster than trends in the wider economy might suggest. That is particularly true of the less creditworthy subprime borrowers. More­over, consumers have stopped paying mortgages before they halt payments on their credit cards or automotive loans – turning the traditional delinquency pattern on its head. As a result, mortgage lenders have started to face losses at a much earlier stage than in the past.” (from “Last year’s model: stricken US homeowners confound predictions”, Financial Times, January 31 2008)

Very good. But wait. Maybe what people actually did was just to learn how to be affected by credit scoring in a most reasonable manner, since rates depend on FICO scores and only credit card data is used to calculate them. Well, just an hypothesis (a sociologist of credit devices would have put it that way).

(More indeed here.)

Banking on a Changing World

August 10, 2007 in capitalizing, economizing
Tags: banks, credit, finance, france, subprime, us

It seems that BNP Paribas (“la banque d’un monde qui change”) is joining the exclusive group of banks that are experiencing sad pricing problems, suffering from their own efforts at taking advantage from asset-deprived, mortgage-bootstrapped North-American workers:

“BNP Paribas added its name to a growing list of investment houses that have frozen funds exposed to asset-backed credit. [...] Its explanation is becoming all too familiar – the panic over subprime mortgages has made the pricing of these, and related securities, next to impossible.” ( from “Subprime hits BNP Parisbas”, FT.com, August 9 2007)

And here is the press release:

“The complete evaporation of liquidity in certain market segments of the US securitisation market has made it impossible to value certain assets fairly regardless of their quality or credit rating. The situation is such that it is no longer possible to value fairly the underlying US ABS assets in the three above-mentioned funds. We are therefore unable to calculate a reliable net asset value (NAV) for the funds.” (from Press Release, BNP Paribas, August 9 2007).

Compare to this other one on consumer credit here:

“BNP Paribas, through its Cetelem subsidiary, acquires JetFinance International, Bulgaria’s leading consumer credit specialist, consolidating its pole position in this sector in continental Europe.” (from Press Release, BNP Paribas, August 3 2007).

Consumer credit rating (a great specialty, with the mortgages industry, to train consumers into risk) looked like good business a week ago. Now, how much do 3,000 high-risk subprime mortgages in Iowa worth, though? Difficult calculation, indeed. But apparently these bankers considered it was an “interesting” question to ask in the first place. Poor little banks, torn by calculative abdication.