So Roger Federer did come good on Sunday's French Open final against Robin Soderling. Who had ever thought of him winning the Roland Garros championship just before the tournament started barely two weeks ago? Yes, he won. No kidding this time -- albeit the absence of his long time nemesis Rafael Nadal in the final did make the process easier for him by beating Robin Soderling in straight sets.
Even though Roger Federer is not at his best form in the French Open, he still managed to produce good service games and some good aces when he needed it. That i think is the most crucial difference why he can still beat Tommy Haas and Juan Martin Del Potro in five sets en route to the final. A lot of his repertoires under his belt are not here to be seen but it is OK if he keeps on producing consistent service game and hold on trying to break his opponent's service game when time comes.
As for the Wimbledon in two weeks time, i don't see anybody will beat Roger Federer on grass this year. He is a different animal on grass. Last year his lost in the epic final to Nadal was one-off story. Also, i don't see Nadal can produce the best form as he did in the Wimbledon last year. Something is missing in Nadal's game lately. Suddenly, Nadal seems vulnerable. Maybe Andy Murray will give some good shows in Wimbledon this year. Who knows?
But now let savour the sparkling Roger Federer - the vintage that finally comes good in Paris. His final jigsaw puzzle in his quest for the Slams has finally put in place and sealed in the history. Salute!
Monday, June 8, 2009
Wednesday, October 8, 2008
Fed to buy massive amounts of short-term debt
By Jeannine Aversa, AP Economics Writer
WASHINGTON (AP) -- The Federal Reserve announced Tuesday a radical plan to buy massive amounts of short-term debt in a dramatic effort to break through a credit clog that is imperiling the economy.
Invoking Depression-era emergency powers, the Fed 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.
In more normal times, about $100 billion of these short-term IOUs were outstanding at any given time, sold by companies to buyers that included money market mutual funds, pension funds and other investors. But this market has virtually dried up as investors have become too jittery to buy paper for longer than overnight or a couple days.
That has made it increasingly difficult and expensive for companies to raise money to fund their operations. Commercial paper is a way of borrowing money for short periods, typically ranging from overnight to less than a week.
The unstable situation has left many companies vulnerable. The notion under the plan is for the government to provide a "backstop" that would give companies a new place to get cash, the Fed said. The action makes the Fed a crucial source of credit for nonfinancial businesses in addition to commercial banks and investment firms.
The Fed's action initially helped lift investors' spirits, although concerns about the economy dampened their enthusiasm. The Dow Jones industrials -- which gained about 145 points just after the open -- fell nearly 63 points in midday trading. Monday, a huge selloff put the Dow below 10,000 for the first time in four years.
Concerns about the credit markets pushed investors into longer-term Treasury bonds, considered a secure place to park money in times of turmoil. The rush to safety drove yields lower, though.
Credit markets themselves eased slightly, however, after the Fed's move raised hopes it would quickly relieve the short-term funding problems plaguing some companies.
European stocks posted modest gains on hopes that central banks around the globe would coordinate on rate cuts. Share prices in Britain and in Germany, Europe's largest economy, rose. Iceland, however, is facing the prospect of bankruptcy, according to the Prime Minister Geir H. Haarde, after its banks went on a buying spree across Europe, accumulating massive debts in the process.
The Fed said it is creating a new entity to buy three-month unsecured and asset-backed commercial paper directly from eligible companies. It hopes to have the program up and running soon, Fed officials said.
Fed officials said they'll buy as much of the debt as necessary to get the market functioning again. They refused to say how much that might be, but they noted that around $1.3 trillion worth of commercial paper would qualify.
"The commercial paper market has been under considerable strain in recent weeks as money market mutual funds and other investors" have become increasingly reluctant to buy commercial paper, especially longer-dated maturities. As the market for commercial paper shrank, the Fed said rates on the longer-term debt "increased significantly," making it more expensive for companies to borrow.
The Treasury Department, which worked with the Fed on the program, said the action is "necessary to prevent substantial disruptions to the financial markets and the economy."
The Treasury will provide money to the Federal Reserve Bank of New York to support the new program, the Fed said. Fed officials would not say how much but believed it would be substantial. The money would not come from the $700 billion financial bailout President Bush signed into law on Friday.
If a company's commercial paper is not backed by assets or other forms of security acceptable to the Fed, the company could pay an upfront fee, the central bank said. The amount of such a fee has not yet been determined.
The Fed said it hoped its effort would jolt the commercial paper market back to life.
"This facility should encourage investors to once again engage in term lending in the commercial paper market," the Fed said. That should eventually spur financial companies to lend to each other and to their customers, including consumers, the Fed said.
The Fed said it planned to stop buying commercial paper on April 30, 2009, unless the Federal Reserve board agrees to extend the program. The Fed created a separate entity to pool and hold the commercial paper it buys. The Fed said this should allow the central bank to more easily manage the program and better control risk.
There was $1.61 trillion in outstanding commercial paper, seasonally adjusted, on the market as of last Wednesday, according to the most recent data from the Fed. That was down from $1.70 trillion in the previous week. Since the summer of 2007, the market has shrunk from more than $2.2 trillion.
Pressure also is growing on the Fed to reverse course and order a deep reduction in its key interest rate, now at 2 percent. Such a move would be aimed at reviving the moribund economy by encouraging consumers and businesses to boost their spending. Many predict the Fed will act on or before its next meeting on Oct. 28-29. And, some believe it could be part of a broader coordinated move with central banks in other countries.
The White House said President Bush spoke Tuesday with leaders of Britain, France and Italy about measures the United States is taking and the importance of countries working together.
The finance ministers of the G-7 -- the U.S., France, Germany, Italy, Japan, the United Kingdom and Canada -- will meet in Washington at the end of this week and the White House says Bush is open to the idea of a leaders' summit on the economy, as suggested by French President Nicolas Sarkozy.
Fed Chairman Ben Bernanke may offer clues on the Fed's next move when he speaks Tuesday afternoon on the economic outlook and developments in financial markets.
President Bush also was set to talk about the government's bailout effort, which lets the government buy rotten mortgages and other bad debts from banks and other financial institutions. By getting these bad debts off bank's balance sheets, they might be in a better position to raise capital and more willing to lend to each other and to customers.
As the number of failed banks has gone up sharply this year, Sheila Bair, head of the Federal Deposit Insurance Corp., wants to boost fees to financial institutions to replenish the insurance fund that backs the nation's deposits. The increase would double the average paid by U.S. banks and thrifts next year.
The Fed pledged Monday to take "additional measures as necessary" to battle the worst credit crisis in decades.
Treasury Secretary Henry Paulson has tapped a former Goldman Sachs executive to be director of the government's bailout program. Neel Kashkari, who has worked with Paulson at the department since July 2006, was chosen Monday as the interim head of the government's unprecedented effort to unclog the credit markets.
Kashkari, who was a vice president in Goldman's San Francisco office before joining the department, is one of four former executives from the firm now working feverishly to resolve the financial crisis.
The lending lockup is a key reason why the U.S. economy is faltering. Unable to borrow money freely or forced to pay a high cost to borrow, employers are cutting jobs and reducing capital investments. Consumers have retrenched.
Associated Press writers Madlen Read and Tim Paradis in New York and Ben Feller in Washington contributed to this report.
WASHINGTON (AP) -- The Federal Reserve announced Tuesday a radical plan to buy massive amounts of short-term debt in a dramatic effort to break through a credit clog that is imperiling the economy.
Invoking Depression-era emergency powers, the Fed 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.
In more normal times, about $100 billion of these short-term IOUs were outstanding at any given time, sold by companies to buyers that included money market mutual funds, pension funds and other investors. But this market has virtually dried up as investors have become too jittery to buy paper for longer than overnight or a couple days.
That has made it increasingly difficult and expensive for companies to raise money to fund their operations. Commercial paper is a way of borrowing money for short periods, typically ranging from overnight to less than a week.
The unstable situation has left many companies vulnerable. The notion under the plan is for the government to provide a "backstop" that would give companies a new place to get cash, the Fed said. The action makes the Fed a crucial source of credit for nonfinancial businesses in addition to commercial banks and investment firms.
The Fed's action initially helped lift investors' spirits, although concerns about the economy dampened their enthusiasm. The Dow Jones industrials -- which gained about 145 points just after the open -- fell nearly 63 points in midday trading. Monday, a huge selloff put the Dow below 10,000 for the first time in four years.
Concerns about the credit markets pushed investors into longer-term Treasury bonds, considered a secure place to park money in times of turmoil. The rush to safety drove yields lower, though.
Credit markets themselves eased slightly, however, after the Fed's move raised hopes it would quickly relieve the short-term funding problems plaguing some companies.
European stocks posted modest gains on hopes that central banks around the globe would coordinate on rate cuts. Share prices in Britain and in Germany, Europe's largest economy, rose. Iceland, however, is facing the prospect of bankruptcy, according to the Prime Minister Geir H. Haarde, after its banks went on a buying spree across Europe, accumulating massive debts in the process.
The Fed said it is creating a new entity to buy three-month unsecured and asset-backed commercial paper directly from eligible companies. It hopes to have the program up and running soon, Fed officials said.
Fed officials said they'll buy as much of the debt as necessary to get the market functioning again. They refused to say how much that might be, but they noted that around $1.3 trillion worth of commercial paper would qualify.
"The commercial paper market has been under considerable strain in recent weeks as money market mutual funds and other investors" have become increasingly reluctant to buy commercial paper, especially longer-dated maturities. As the market for commercial paper shrank, the Fed said rates on the longer-term debt "increased significantly," making it more expensive for companies to borrow.
The Treasury Department, which worked with the Fed on the program, said the action is "necessary to prevent substantial disruptions to the financial markets and the economy."
The Treasury will provide money to the Federal Reserve Bank of New York to support the new program, the Fed said. Fed officials would not say how much but believed it would be substantial. The money would not come from the $700 billion financial bailout President Bush signed into law on Friday.
If a company's commercial paper is not backed by assets or other forms of security acceptable to the Fed, the company could pay an upfront fee, the central bank said. The amount of such a fee has not yet been determined.
The Fed said it hoped its effort would jolt the commercial paper market back to life.
"This facility should encourage investors to once again engage in term lending in the commercial paper market," the Fed said. That should eventually spur financial companies to lend to each other and to their customers, including consumers, the Fed said.
The Fed said it planned to stop buying commercial paper on April 30, 2009, unless the Federal Reserve board agrees to extend the program. The Fed created a separate entity to pool and hold the commercial paper it buys. The Fed said this should allow the central bank to more easily manage the program and better control risk.
There was $1.61 trillion in outstanding commercial paper, seasonally adjusted, on the market as of last Wednesday, according to the most recent data from the Fed. That was down from $1.70 trillion in the previous week. Since the summer of 2007, the market has shrunk from more than $2.2 trillion.
Pressure also is growing on the Fed to reverse course and order a deep reduction in its key interest rate, now at 2 percent. Such a move would be aimed at reviving the moribund economy by encouraging consumers and businesses to boost their spending. Many predict the Fed will act on or before its next meeting on Oct. 28-29. And, some believe it could be part of a broader coordinated move with central banks in other countries.
The White House said President Bush spoke Tuesday with leaders of Britain, France and Italy about measures the United States is taking and the importance of countries working together.
The finance ministers of the G-7 -- the U.S., France, Germany, Italy, Japan, the United Kingdom and Canada -- will meet in Washington at the end of this week and the White House says Bush is open to the idea of a leaders' summit on the economy, as suggested by French President Nicolas Sarkozy.
Fed Chairman Ben Bernanke may offer clues on the Fed's next move when he speaks Tuesday afternoon on the economic outlook and developments in financial markets.
President Bush also was set to talk about the government's bailout effort, which lets the government buy rotten mortgages and other bad debts from banks and other financial institutions. By getting these bad debts off bank's balance sheets, they might be in a better position to raise capital and more willing to lend to each other and to customers.
As the number of failed banks has gone up sharply this year, Sheila Bair, head of the Federal Deposit Insurance Corp., wants to boost fees to financial institutions to replenish the insurance fund that backs the nation's deposits. The increase would double the average paid by U.S. banks and thrifts next year.
The Fed pledged Monday to take "additional measures as necessary" to battle the worst credit crisis in decades.
Treasury Secretary Henry Paulson has tapped a former Goldman Sachs executive to be director of the government's bailout program. Neel Kashkari, who has worked with Paulson at the department since July 2006, was chosen Monday as the interim head of the government's unprecedented effort to unclog the credit markets.
Kashkari, who was a vice president in Goldman's San Francisco office before joining the department, is one of four former executives from the firm now working feverishly to resolve the financial crisis.
The lending lockup is a key reason why the U.S. economy is faltering. Unable to borrow money freely or forced to pay a high cost to borrow, employers are cutting jobs and reducing capital investments. Consumers have retrenched.
Associated Press writers Madlen Read and Tim Paradis in New York and Ben Feller in Washington contributed to this report.
Sunday, September 14, 2008
No Deal Reached Yet to Decide Lehman's Fate
By CARRICK MOLLENKAMP, DEBORAH SOLOMON, AARON LUCCHETTI, SERENA NG and SUSANNE CRAIG
The outlines of plans to determine the fate of Lehman Brothers Holdings Inc. emerged today even as it became increasingly clear that a clean sale of the entire firm to a big bank would be too difficult to execute.
A sense of optimism that a rescue could be arranged today dimmed as a growing sense of gloom descended on Wall Street. Executives from top banks in the U.S. and Europe huddled with federal regulators in an attempt to come up with plans to either buy pieces of Lehman or prepare for an orderly winding down of the firm in a manner that would minimize the collateral damage for the ailing global financial system.
After 6 p.m., the formal meeting ended for the day with no resolution, though some participants stayed behind to continue talking. "Senior representatives of major financial institutions reconvened on Saturday with U.S. officials at the New York Fed. Discussions are expected to continue tomorrow," said a spokeswoman for the Federal Reserve.
At about 8 p.m., New York Fed President Timothy Geithner was still at the bank's headquarters. Officials from the New York Fed and various banks were expected to continue working through the night.
Under one plan, either Barclays PLC or Bank of America Corp. would buy Lehman's "good assets", such as its equities business, people familiar with the matter say. Lehman's more toxic, real-estate assets would be ring-fenced into a "bad" bank that would contain about $85 billion in souring assets. Other Wall Street firms would try to inject some capital into the bad bank to keep it afloat for a period of time so that a flood of bad assets don't deluge the market, damaging the value of similar assets held by other banks and insurers. The banks are also looking for the government to somehow financially backstop the bad bank.
The problem, though, is getting enough banks to back that plan. While teams of bankers are working through structures, it's clear that only a handful of banks are in a position to provide enough funding. Many banks are inclined to preserve capital ahead of third-quarter and year-end cash preservation moves. Also, banks aren't keen to see a big rival such as Barclays or Bank of America walk away with valuable assets by only paying a pittance.
As of Saturday afternoon, Barclays, the U.K.'s third-largest bank in terms of market value, appeared to have more interest in pulling off a deal for Lehman's good assets. At about 3 p.m. on Saturday, Barclays President Robert E. Diamond Jr. was seen entering the New York Fed's employee entrance on Maiden Lane, carrying a briefcase.
Bank of America, an obvious buyer, appeared to be cooling toward a deal, people familiar with the matter. Of course, some of this could be the posturing that happens in any auction. Neither Barclays nor Bank of America wants to buy all of Lehman without some government assistance, and so far the government has been reluctant to do so.
Both Bank of America and Barclays remain fixated on the disposal of the bad real estate assets, and are less focused on evaluating Lehman's investment bank, said one person involved in the due diligence process. Things were moving so quickly Saturday that there was little time to do extensive employee interviewing that typically happens in company auctions. "It's all triage," said this person.
The real fear in the discussions, this person added, was that the fire-sale prices, or "marks" of Lehman's real estate book could set off a cascade of problems for other Wall Street firms. If those marks were made against other banks' portfolios, it could eventually force those firms to raise more capital, too. For firms' considering funding the bad bank, the calculation has thus become the price of that contribution against the price of a widescale markdown.
There could be further effects to such an event, with the banks calling in loans from hedge funds and other clients, in turn setting off more forced selling that further depresses asset and securities prices.
"Unless something is settled, it's going to be a bloodbath Monday," said this person.
In a meeting at the Federal Reserve Bank of New York in lower Manhattan, some participants also were discussing insurer American International Group Inc. and thrift-holding company Washington Mutual Inc. While those two financial firms aren't the focus of the emergency meeting, participants also are weighing the potential implications of their problems.
One person leaving the building said at least 100 people were gathered inside trying to settle the fate of Lehman, which has been staggered by its exposure to soured real-estate-related assets. By 5:15 pm, some Wall Street executives started to leave the New York Fed one at a time, getting in their cars inside a garage so they can't have their photos snapped.
Outside the Fed's downtown headquarters, a fleet of black towncars waited for bankers who were inside. At one point, the towncars blocked the narrow streets around the building, causing a traffic jam that had to be broken up by the Fed's uniformed guards. Meanwhile, bankers and Fed staffers milled around outside, smoking cigarettes and talking on their cell phones about subjects like counterparty risk.
"Everybody is hoping there will be a Wall Street solution to deal with Lehman's toxic assets," said one senior executive at a major bank. "It is a cheaper alternative than having everything unravel."
With it unclear whether the gap between the federal government and potential buyers can be bridged, a second group at the New York Fed is focusing on the possibility that there might be no alternative to liquidating Lehman and winding down its operations in an orderly fashion.
On Saturday afternoon, the credit-trading heads of major investment banks gathered at the meeting to discuss how to deal with their exposures to Lehman in the intertwined credit-default-swap market. The lack of a central clearinghouse in this market means that dealers, hedge funds and others are directly facing each other in insurance-like contracts that are tied to trillions of dollars in debt instruments.
Credit derivative traders at some firms were asked to come to work over the weekend to help quantify their exposures to Lehman and compile lists of outstanding contracts they have with the investment bank.
One person familiar with the matter said large dealers contemplated showing each other all of their credit default swap trades with Lehman. Disclosing their positions may enable dealers to find ways to offset their positions with each other wherever possible. Later in the day, some traders were told that Lehman -- with the help of Federal Reserve officials -- will try to figure out which of its counterparties have CDS trades that can be offset. Those counterparties would be informed of the offsetting positions, following which they can unwind their respective swaps with Lehman and concurrently enter into new swap contracts with each other. For example, if one dealer has bought a swap from Lehman and Lehman sold a similar swap to another bank, the two banks could agree to face each other directly.
Such moves could help prevent individual firms from scrambling to find new counterparties to rehedge their positions with when the markets reopen on Monday, potentially unleashing turmoil across the credit markets. They could also help facilitate an orderly wind-down of Lehman's derivative positions, if that becomes necessary. Still, sorting out the firm's CDS positions promises to be a difficult and time-consuming task, because many of the contracts have different terms and maturity dates.
It is not known how much in CDS contracts Lehman has. In a survey last year by Fitch Ratings, Lehman was listed among the 10 largest CDS counterparties by number of trades and the amount of debt to which the contracts were tied.
Wall Street traders poured into their offices Saturday for emergency meetings to consider the actions they would take if Lehman is forced into liquidation. They broke into teams to evaluate their positions and exposure to Lehman in everything from energy trades to equity derivatives to credit,
One trader said conditions in the credit default swap market and the short-term repo markets are more stable today than they were in March, when Bear Stearns nearly collapsed, but still, "if they go into liquidation," it is going to be a bad situation on Monday.
A disorderly unwind of Lehman's derivatives trades is only one worry. Another worry is that if Lehman collapses, its distressed assets -- such as commercial real estate -- could suddenly hit Wall Street for sale, forcing prices even lower and potentially forcing other dealers to mark down once again the value of their own holdings.
Lehman has hired law firm Weil, Gotshal & Manges LLP to prepare a potential bankruptcy filing, according to a person familiar with the situation. The New York-based Weil has a leading bankruptcy practice and advised Drexel Burnham Lambert on its 1990 bankruptcy filing.
In a Lehman bankruptcy, the firm's brokerage units would have to enter a Chapter 7 liquidation, in which a court-appointed trustee would take over, liquidate the firm's assets and get Lehman customers back their money. In general, securities that a customer holds at a brokerage firm are legally the investor's property and aren't exposed to the claims of the firm's creditors.
In trying to hold firm to their no-bailout stance even while pressing for a deal, federal officials could try to pit Bank of America and Barclays against each other. But that leverage can work only if both banks stay in the discussions.
Bank of America and Barclays know each other very well, having considered a merger several years ago. More recently, Bank of America agreed to pay $21 billion for ABN Amro Holding NV's LaSalle Bank of Chicago in 2007. That deal came at a time when Barclays was trying to buy ABN and fend off a European consortium bid. Bank of America's purchase was seen at the time as helping that Barclays bid, which ultimately failed.
At Barclays, a big question will be whether CEO John Varley and his No. 2, Mr. Diamond, both agree on buying all or part of Lehman. Mr. Diamond is eager to expand Barclays's U.S. investment bank operations. But the unit, called Barclays Capital, is also responsible for write-downs the bank has recorded.
After 5 p.m., bank executives began leaving the meeting, some getting into cars inside a garage where they couldn't be photographed. Those seen leaving included Merrill Lynch & Co. Chairman and Executive John Thain and Citigroup Inc. CEO Vikram Pandit. Bank of New York Mellon Corp. Chairman and CEO Robert Kelly declined to comment.
While some executives had left the Fed meeting, those of other firms, including three carfuls of Barclays executives, remained at the Fed office past 6 p.m.
At least 20 New York Fed staffers left from another exit. They refused to say if they were done for the night.
The outlines of plans to determine the fate of Lehman Brothers Holdings Inc. emerged today even as it became increasingly clear that a clean sale of the entire firm to a big bank would be too difficult to execute.
A sense of optimism that a rescue could be arranged today dimmed as a growing sense of gloom descended on Wall Street. Executives from top banks in the U.S. and Europe huddled with federal regulators in an attempt to come up with plans to either buy pieces of Lehman or prepare for an orderly winding down of the firm in a manner that would minimize the collateral damage for the ailing global financial system.
After 6 p.m., the formal meeting ended for the day with no resolution, though some participants stayed behind to continue talking. "Senior representatives of major financial institutions reconvened on Saturday with U.S. officials at the New York Fed. Discussions are expected to continue tomorrow," said a spokeswoman for the Federal Reserve.
At about 8 p.m., New York Fed President Timothy Geithner was still at the bank's headquarters. Officials from the New York Fed and various banks were expected to continue working through the night.
Under one plan, either Barclays PLC or Bank of America Corp. would buy Lehman's "good assets", such as its equities business, people familiar with the matter say. Lehman's more toxic, real-estate assets would be ring-fenced into a "bad" bank that would contain about $85 billion in souring assets. Other Wall Street firms would try to inject some capital into the bad bank to keep it afloat for a period of time so that a flood of bad assets don't deluge the market, damaging the value of similar assets held by other banks and insurers. The banks are also looking for the government to somehow financially backstop the bad bank.
The problem, though, is getting enough banks to back that plan. While teams of bankers are working through structures, it's clear that only a handful of banks are in a position to provide enough funding. Many banks are inclined to preserve capital ahead of third-quarter and year-end cash preservation moves. Also, banks aren't keen to see a big rival such as Barclays or Bank of America walk away with valuable assets by only paying a pittance.
As of Saturday afternoon, Barclays, the U.K.'s third-largest bank in terms of market value, appeared to have more interest in pulling off a deal for Lehman's good assets. At about 3 p.m. on Saturday, Barclays President Robert E. Diamond Jr. was seen entering the New York Fed's employee entrance on Maiden Lane, carrying a briefcase.
Bank of America, an obvious buyer, appeared to be cooling toward a deal, people familiar with the matter. Of course, some of this could be the posturing that happens in any auction. Neither Barclays nor Bank of America wants to buy all of Lehman without some government assistance, and so far the government has been reluctant to do so.
Both Bank of America and Barclays remain fixated on the disposal of the bad real estate assets, and are less focused on evaluating Lehman's investment bank, said one person involved in the due diligence process. Things were moving so quickly Saturday that there was little time to do extensive employee interviewing that typically happens in company auctions. "It's all triage," said this person.
The real fear in the discussions, this person added, was that the fire-sale prices, or "marks" of Lehman's real estate book could set off a cascade of problems for other Wall Street firms. If those marks were made against other banks' portfolios, it could eventually force those firms to raise more capital, too. For firms' considering funding the bad bank, the calculation has thus become the price of that contribution against the price of a widescale markdown.
There could be further effects to such an event, with the banks calling in loans from hedge funds and other clients, in turn setting off more forced selling that further depresses asset and securities prices.
"Unless something is settled, it's going to be a bloodbath Monday," said this person.
In a meeting at the Federal Reserve Bank of New York in lower Manhattan, some participants also were discussing insurer American International Group Inc. and thrift-holding company Washington Mutual Inc. While those two financial firms aren't the focus of the emergency meeting, participants also are weighing the potential implications of their problems.
One person leaving the building said at least 100 people were gathered inside trying to settle the fate of Lehman, which has been staggered by its exposure to soured real-estate-related assets. By 5:15 pm, some Wall Street executives started to leave the New York Fed one at a time, getting in their cars inside a garage so they can't have their photos snapped.
Outside the Fed's downtown headquarters, a fleet of black towncars waited for bankers who were inside. At one point, the towncars blocked the narrow streets around the building, causing a traffic jam that had to be broken up by the Fed's uniformed guards. Meanwhile, bankers and Fed staffers milled around outside, smoking cigarettes and talking on their cell phones about subjects like counterparty risk.
"Everybody is hoping there will be a Wall Street solution to deal with Lehman's toxic assets," said one senior executive at a major bank. "It is a cheaper alternative than having everything unravel."
With it unclear whether the gap between the federal government and potential buyers can be bridged, a second group at the New York Fed is focusing on the possibility that there might be no alternative to liquidating Lehman and winding down its operations in an orderly fashion.
On Saturday afternoon, the credit-trading heads of major investment banks gathered at the meeting to discuss how to deal with their exposures to Lehman in the intertwined credit-default-swap market. The lack of a central clearinghouse in this market means that dealers, hedge funds and others are directly facing each other in insurance-like contracts that are tied to trillions of dollars in debt instruments.
Credit derivative traders at some firms were asked to come to work over the weekend to help quantify their exposures to Lehman and compile lists of outstanding contracts they have with the investment bank.
One person familiar with the matter said large dealers contemplated showing each other all of their credit default swap trades with Lehman. Disclosing their positions may enable dealers to find ways to offset their positions with each other wherever possible. Later in the day, some traders were told that Lehman -- with the help of Federal Reserve officials -- will try to figure out which of its counterparties have CDS trades that can be offset. Those counterparties would be informed of the offsetting positions, following which they can unwind their respective swaps with Lehman and concurrently enter into new swap contracts with each other. For example, if one dealer has bought a swap from Lehman and Lehman sold a similar swap to another bank, the two banks could agree to face each other directly.
Such moves could help prevent individual firms from scrambling to find new counterparties to rehedge their positions with when the markets reopen on Monday, potentially unleashing turmoil across the credit markets. They could also help facilitate an orderly wind-down of Lehman's derivative positions, if that becomes necessary. Still, sorting out the firm's CDS positions promises to be a difficult and time-consuming task, because many of the contracts have different terms and maturity dates.
It is not known how much in CDS contracts Lehman has. In a survey last year by Fitch Ratings, Lehman was listed among the 10 largest CDS counterparties by number of trades and the amount of debt to which the contracts were tied.
Wall Street traders poured into their offices Saturday for emergency meetings to consider the actions they would take if Lehman is forced into liquidation. They broke into teams to evaluate their positions and exposure to Lehman in everything from energy trades to equity derivatives to credit,
One trader said conditions in the credit default swap market and the short-term repo markets are more stable today than they were in March, when Bear Stearns nearly collapsed, but still, "if they go into liquidation," it is going to be a bad situation on Monday.
A disorderly unwind of Lehman's derivatives trades is only one worry. Another worry is that if Lehman collapses, its distressed assets -- such as commercial real estate -- could suddenly hit Wall Street for sale, forcing prices even lower and potentially forcing other dealers to mark down once again the value of their own holdings.
Lehman has hired law firm Weil, Gotshal & Manges LLP to prepare a potential bankruptcy filing, according to a person familiar with the situation. The New York-based Weil has a leading bankruptcy practice and advised Drexel Burnham Lambert on its 1990 bankruptcy filing.
In a Lehman bankruptcy, the firm's brokerage units would have to enter a Chapter 7 liquidation, in which a court-appointed trustee would take over, liquidate the firm's assets and get Lehman customers back their money. In general, securities that a customer holds at a brokerage firm are legally the investor's property and aren't exposed to the claims of the firm's creditors.
In trying to hold firm to their no-bailout stance even while pressing for a deal, federal officials could try to pit Bank of America and Barclays against each other. But that leverage can work only if both banks stay in the discussions.
Bank of America and Barclays know each other very well, having considered a merger several years ago. More recently, Bank of America agreed to pay $21 billion for ABN Amro Holding NV's LaSalle Bank of Chicago in 2007. That deal came at a time when Barclays was trying to buy ABN and fend off a European consortium bid. Bank of America's purchase was seen at the time as helping that Barclays bid, which ultimately failed.
At Barclays, a big question will be whether CEO John Varley and his No. 2, Mr. Diamond, both agree on buying all or part of Lehman. Mr. Diamond is eager to expand Barclays's U.S. investment bank operations. But the unit, called Barclays Capital, is also responsible for write-downs the bank has recorded.
After 5 p.m., bank executives began leaving the meeting, some getting into cars inside a garage where they couldn't be photographed. Those seen leaving included Merrill Lynch & Co. Chairman and Executive John Thain and Citigroup Inc. CEO Vikram Pandit. Bank of New York Mellon Corp. Chairman and CEO Robert Kelly declined to comment.
While some executives had left the Fed meeting, those of other firms, including three carfuls of Barclays executives, remained at the Fed office past 6 p.m.
At least 20 New York Fed staffers left from another exit. They refused to say if they were done for the night.
Wednesday, September 3, 2008
How J.P. Morgan steered clear of the credit crunch
By Shawn Tully, Sept 15 issue of Fortune
NEW YORK (Fortune) -- It was the second week of October 2006. William King, then J.P. Morgan's chief of securitized products, was vacationing in Rwanda. One evening CEO Jamie Dimon tracked him down to fire a red alert. "Billy, I really want you to watch out for subprime!" Dimon's voice crackled over King's hotel phone. "We need to sell a lot of our positions. I've seen it before. This stuff could go up in smoke!"
That call marked the beginning of a remarkable strategic shift that helped J.P. Morgan (JPM, Fortune 500) sidestep the worst of a historic credit crisis. J.P. Morgan mostly exited the business of securitizing subprime mortgages when it was booming. With the notable exception of Goldman Sachs (GS, Fortune 500), J.P. Morgan's main competitors - including Citigroup (C, Fortune 500), UBS (UBS), and Merrill Lynch (MER, Fortune 500) - ignored the danger signs and piled into those products in a feeding frenzy. (This is an excerpt from a story that ran in the Sept. 15 issue of Fortune. For more on Dimon and the team of talented lieutenants who helped J.P. Morgan dodge the credit crisis, read the full story)
Make no mistake: J.P. Morgan is also suffering from the credit crunch. While it largely dodged the subprime bullet, J.P. Morgan stumbled in two other areas: funding dubious deals in the LBO frenzy and jumping into the jumbo mortgage market when other banks were getting out. The third quarter is already looking tough. The company has announced that it is taking $1.5 billion in mortgage and leveraged-loan write-downs, and another $600 million to account for the decline in the value of its Fannie Mae and Freddie Mac preferred stock.
Still, J.P. Morgan is weathering the crisis far better than its rivals. From July 2007, when the cyclone began, through the second quarter of this year, J.P. Morgan took just $5 billion in losses on high-risk CDOs and leveraged loans, compared with $33 billion at Citi, $26 billion at Merrill Lynch, and $9 billion at Bank of America (BAC, Fortune 500). And in this market, losing less means winning big. Before the crisis J.P. Morgan was a middle-of-the-pack performer; today it leads in nearly every category, starting with its stock. Since early 2007, its share price has dropped 24%, to $37 (as of Aug. 27), vs. declines of 44% for Bank of America and 68% for Citigroup. Last year its market cap was far below those of Citi and BofA. Today J.P. Morgan stands in a virtual tie with BofA for first place among U.S. banks, and it towers over Citi.
That is largely thanks to J.P. Morgan's decision to shun subprime CDOs - vehicles that sell bonds backed by pools of subprime mortgage-backed securities. J.P. Morgan has long ranked among the biggest buyers of auto and credit card loans, which it turned into asset-backed securities. But even in 2005, J.P. Morgan remained a small player in the hottest business on Wall Street, securitizing mortgages. Dimon wanted to build a far bigger franchise, chiefly by securitizing the loans made by the bank itself through its Chase Home Lending division. By 2006, J.P. Morgan was growing substantially in securitizing mortgages and dabbling in subprime CDOs, a business that was generating billions in fees for other Wall Street firms.
But Dimon soon began to see reasons to pull back. One red flag came from the mortgage servicing business, the branch that sends out statements, handles escrow, and collects payments on $800 billion in home loans, its own and others'. During a regular monthly business review for the retail bank in October 2006, the chief of servicing said that late payments on subprime loans were rising at an alarming rate. The data showed that loans originated by competitors like First Franklin and American Home were performing three times worse than J.P. Morgan's subprime mortgages. "We concluded that underwriting standards were deteriorating across the industry," says Dimon.
Steve Black and Bill Winters, co-heads of the investment bank, were discovering more reasons to be cautious. CDOs issue a range of bonds, from supposedly safe AAA-rated ones with relatively low yields to lower-rated ones with higher yields. Winters and Black saw that hedge funds, insurance companies, and other customers were clamoring for the high-yielding CDO paper and were less interested in the other stuff. That meant banks like Merrill and Citi were forced to hold billions of dollars of the AAA paper on their books. What's wrong with that? Doesn't an AAA rating mean the securities are safe? Not necessarily.
In 2006, AAA-rated CDO bonds yielded only two percentage points more than supersafe Treasury bills. So the market seemed to be saying that the bonds were solid. But Black and Winters concluded otherwise. Their yardstick was credit default swaps - insurance against bond failures. By late 2006 the cost of default swaps on subprime CDOs had jumped sharply. Winters and Black saw that once they bought credit default swaps to hedge the AAA CDO paper J.P. Morgan would have to hold, the fees from creating CDOs would vanish. "We saw no profit, and lots of risk, in holding subprime paper on our balance sheet," says Winters. The combined weight of that data triggered Dimon's call to King in Africa. "It was Jamie who saw all the pieces," says Winters.
In late 2006, J.P. Morgan started slashing its holdings of subprime debt. It sold more than $12 billion in subprime mortgages that it had originated. Its trading desks dumped the loans on their books and mostly stopped making markets in subprime paper for customers. J.P. Morgan's corporate treasury under Ina Drew even starting hedging, betting that credit spreads would widen. Over the next year those hedges reportedly yielded gains of hundreds of millions of dollars.
Dimon's stance was radical: He was skirting the biggest growth business on Wall Street. J.P. Morgan sank from third to sixth in fixed-income underwriting from 2005 to 2007, and the main reason was its refusal to play in subprime CDOs, which its rivals were gorging on. "We'd get the quarterly reports from our competitors and see that they'd added $100 billion to their balance sheets," says Dimon. "And they were hardly adding any capital, so it looked like their investments were almost risk-free." But in the end, of course, the decision to shun subprime made Dimon a hero.
NEW YORK (Fortune) -- It was the second week of October 2006. William King, then J.P. Morgan's chief of securitized products, was vacationing in Rwanda. One evening CEO Jamie Dimon tracked him down to fire a red alert. "Billy, I really want you to watch out for subprime!" Dimon's voice crackled over King's hotel phone. "We need to sell a lot of our positions. I've seen it before. This stuff could go up in smoke!"
That call marked the beginning of a remarkable strategic shift that helped J.P. Morgan (JPM, Fortune 500) sidestep the worst of a historic credit crisis. J.P. Morgan mostly exited the business of securitizing subprime mortgages when it was booming. With the notable exception of Goldman Sachs (GS, Fortune 500), J.P. Morgan's main competitors - including Citigroup (C, Fortune 500), UBS (UBS), and Merrill Lynch (MER, Fortune 500) - ignored the danger signs and piled into those products in a feeding frenzy. (This is an excerpt from a story that ran in the Sept. 15 issue of Fortune. For more on Dimon and the team of talented lieutenants who helped J.P. Morgan dodge the credit crisis, read the full story)
Make no mistake: J.P. Morgan is also suffering from the credit crunch. While it largely dodged the subprime bullet, J.P. Morgan stumbled in two other areas: funding dubious deals in the LBO frenzy and jumping into the jumbo mortgage market when other banks were getting out. The third quarter is already looking tough. The company has announced that it is taking $1.5 billion in mortgage and leveraged-loan write-downs, and another $600 million to account for the decline in the value of its Fannie Mae and Freddie Mac preferred stock.
Still, J.P. Morgan is weathering the crisis far better than its rivals. From July 2007, when the cyclone began, through the second quarter of this year, J.P. Morgan took just $5 billion in losses on high-risk CDOs and leveraged loans, compared with $33 billion at Citi, $26 billion at Merrill Lynch, and $9 billion at Bank of America (BAC, Fortune 500). And in this market, losing less means winning big. Before the crisis J.P. Morgan was a middle-of-the-pack performer; today it leads in nearly every category, starting with its stock. Since early 2007, its share price has dropped 24%, to $37 (as of Aug. 27), vs. declines of 44% for Bank of America and 68% for Citigroup. Last year its market cap was far below those of Citi and BofA. Today J.P. Morgan stands in a virtual tie with BofA for first place among U.S. banks, and it towers over Citi.
That is largely thanks to J.P. Morgan's decision to shun subprime CDOs - vehicles that sell bonds backed by pools of subprime mortgage-backed securities. J.P. Morgan has long ranked among the biggest buyers of auto and credit card loans, which it turned into asset-backed securities. But even in 2005, J.P. Morgan remained a small player in the hottest business on Wall Street, securitizing mortgages. Dimon wanted to build a far bigger franchise, chiefly by securitizing the loans made by the bank itself through its Chase Home Lending division. By 2006, J.P. Morgan was growing substantially in securitizing mortgages and dabbling in subprime CDOs, a business that was generating billions in fees for other Wall Street firms.
But Dimon soon began to see reasons to pull back. One red flag came from the mortgage servicing business, the branch that sends out statements, handles escrow, and collects payments on $800 billion in home loans, its own and others'. During a regular monthly business review for the retail bank in October 2006, the chief of servicing said that late payments on subprime loans were rising at an alarming rate. The data showed that loans originated by competitors like First Franklin and American Home were performing three times worse than J.P. Morgan's subprime mortgages. "We concluded that underwriting standards were deteriorating across the industry," says Dimon.
Steve Black and Bill Winters, co-heads of the investment bank, were discovering more reasons to be cautious. CDOs issue a range of bonds, from supposedly safe AAA-rated ones with relatively low yields to lower-rated ones with higher yields. Winters and Black saw that hedge funds, insurance companies, and other customers were clamoring for the high-yielding CDO paper and were less interested in the other stuff. That meant banks like Merrill and Citi were forced to hold billions of dollars of the AAA paper on their books. What's wrong with that? Doesn't an AAA rating mean the securities are safe? Not necessarily.
In 2006, AAA-rated CDO bonds yielded only two percentage points more than supersafe Treasury bills. So the market seemed to be saying that the bonds were solid. But Black and Winters concluded otherwise. Their yardstick was credit default swaps - insurance against bond failures. By late 2006 the cost of default swaps on subprime CDOs had jumped sharply. Winters and Black saw that once they bought credit default swaps to hedge the AAA CDO paper J.P. Morgan would have to hold, the fees from creating CDOs would vanish. "We saw no profit, and lots of risk, in holding subprime paper on our balance sheet," says Winters. The combined weight of that data triggered Dimon's call to King in Africa. "It was Jamie who saw all the pieces," says Winters.
In late 2006, J.P. Morgan started slashing its holdings of subprime debt. It sold more than $12 billion in subprime mortgages that it had originated. Its trading desks dumped the loans on their books and mostly stopped making markets in subprime paper for customers. J.P. Morgan's corporate treasury under Ina Drew even starting hedging, betting that credit spreads would widen. Over the next year those hedges reportedly yielded gains of hundreds of millions of dollars.
Dimon's stance was radical: He was skirting the biggest growth business on Wall Street. J.P. Morgan sank from third to sixth in fixed-income underwriting from 2005 to 2007, and the main reason was its refusal to play in subprime CDOs, which its rivals were gorging on. "We'd get the quarterly reports from our competitors and see that they'd added $100 billion to their balance sheets," says Dimon. "And they were hardly adding any capital, so it looked like their investments were almost risk-free." But in the end, of course, the decision to shun subprime made Dimon a hero.
Sunday, August 17, 2008
Summer Olympics - Beijing 2008
Hottest news so far...
1. Michael Phelps after all did win 8th gold medal at a single Olympics from the pool with slightest of a margin -- his 100m butterfly event was only 1/100 of a second ahead of Milorad Cavic of Serbia.
2. Usain Bolt of Jamaica is indeed running like a lightning bolt in the 100m men sprint event with a world record time of 9.69 second. The final showdown between Bolt, Asafa Powell and Tyson Gay did not materialize after Gay failed to qualify for the final. Powell finished the event in the 5th place.
3. Roger Federer of Switzerland did win the gold medal from Beijing -- not from the men single but from the double event in which he teamed up with Stanislas Wawrinka to beat Sweden pair of Simon Aspelin and Thomas Johansson in the men tennis double final.
4. Rafael Nadal of Spain celebrates his world no.1 status with an emphatic win over Chilean Fernando Gonzalez in the final of men tennis to win the gold medal.
5. Can China win the overall title from United States of America? China is still leading in the gold medal haul but USA is closing the gap fast with Olympics is only less than a week to go.
1. Michael Phelps after all did win 8th gold medal at a single Olympics from the pool with slightest of a margin -- his 100m butterfly event was only 1/100 of a second ahead of Milorad Cavic of Serbia.
2. Usain Bolt of Jamaica is indeed running like a lightning bolt in the 100m men sprint event with a world record time of 9.69 second. The final showdown between Bolt, Asafa Powell and Tyson Gay did not materialize after Gay failed to qualify for the final. Powell finished the event in the 5th place.
3. Roger Federer of Switzerland did win the gold medal from Beijing -- not from the men single but from the double event in which he teamed up with Stanislas Wawrinka to beat Sweden pair of Simon Aspelin and Thomas Johansson in the men tennis double final.
4. Rafael Nadal of Spain celebrates his world no.1 status with an emphatic win over Chilean Fernando Gonzalez in the final of men tennis to win the gold medal.
5. Can China win the overall title from United States of America? China is still leading in the gold medal haul but USA is closing the gap fast with Olympics is only less than a week to go.
Tuesday, July 29, 2008
Difference between Hedge Fund & Private Equity
By Matthew Lynn
What's the difference between a hedge fund and a private-equity fund?
Easy. One speculates in bonds, stocks, currencies and commodities, using leverage and derivatives, while the other uses its own capital and borrowed money to buy companies, improve them, and then sell them on.
Well, not so fast. The evidence suggests that hedge funds and private-equity funds, the two hottest growth sectors of the financial universe for the past five years, are converging.
What seems to be emerging is a new type of alternative investment fund that shrugs aside traditional ideas of risk and seeks the highest returns any way it can.
Last week at a conference in Frankfurt, David Rubenstein, a co-founder of Carlyle Group, the world's third-biggest buyout firm, said private-equity and hedge funds may eventually converge. "Funds may be created that have the combined characteristics of private equity and hedge funds," Rubenstein said.
Carlyle, based in Washington, estimates that there are 9,000 hedge funds with investments worth about $1 trillion, while 3,000 private-equity funds have $150 billion in assets worldwide.
There is certainly no shortage of evidence of the two types of fund treading on each other's turf.
First, Carlyle itself has just announced plans to launch two hedge funds later this year. And New York-based Blackstone Group LP, which manages the world's biggest buyout fund, has already set up a hedge-fund unit, which oversees about $9 billion in assets. Meanwhile, Carl Icahn, a legendary Wall Street raider, is launching his own hedge fund.
$3.25 Billion Offer
Next, hedge funds are now acting more like buyout firms.
For example, Circuit City Stores Inc., the No. 2 electronics retailer, last month received a $3.25 billion takeover offer from Boston-based Highfields Capital Management LP, which manages hedge funds. Likewise, Beverly Enterprises Inc., a nursing-home chain, last month rejected a bid worth $1.41 billion from an investor group that included hedge fund Appaloosa Management LP.
Buying out whole companies because you think they are undervalued? That's the kind of work that used to be done by private-equity firms.
So how real is the convergence story?
Traditionally, hedge funds and private-equity firms have been seen as deadly rivals. They compete in two main ways.
They joust for talent. Any bright 20-something in the financial markets who wants to make a lot of money quickly (and that covers maybe 99 percent of them) faces a simple choice: work in hedge funds or in private equity. One of the tasks for both industries is to bring those people with their ideas on board.
'Alternative Investments'
And they compete for money. Most mainstream investors put the bulk of their capital into equities and bonds. They have a small amount allocated to a box marked "alternative investments" for which they are willing to accept higher risk for bigger returns. Both the hedge-fund and private-equity managers are chasing that same pool of footloose capital.
Yet the rivalry is rather like one of those fiercely contested local derbies between football teams from the same town. The competition is intense precisely because they are, in reality, playing on the same turf.
The two types of fund are now morphing into one another. Both have always, at root, been about the same thing: using financial engineering intelligently in the hope of generating returns higher than anything available from mainstream investments. Sometimes it works, and sometimes it doesn't. The plan is much the same.
20 Percent Fees
In time, hedge funds and private-equity firms may end up being the same thing. Some already are. Last month, the Financial Times reported that New York-based private-equity firm AEA Investors LLC plans to merge with Aetos Capital LLC, a real-estate and hedge-fund firm.
One of the key features of hedge funds is that they don't accept any artificial boundaries on their investments. If they see a profit, they pursue it. A hedge fund won't stop and say, "No, we can't do this because, even though it might make us some big bucks, that's not what hedge funds do." That would go against all their best instincts.
Meanwhile, for the private-equity guys, a hedge fund has a more flexible financial structure and more freedom in the kind of investments it makes. And it generates higher fees, which are typically 20 percent of any gains made. (Not that the private- equity firms were ever slouches at paying themselves.)
Three Trends
That's why we should expect to see three trends in the year ahead: more mergers between hedge and private-equity funds; more private-equity firms launching hedge funds; and more hedge funds acting like buyout funds. The result? A new breed of alternative investment, probably with the structure of a hedge fund, yet looks more like a buyout fund.
What's the risk profile of Mega-Hedge-Buyouts LLP? Don't even ask. No doubt, some regulators are already chewing their fingernails at the thought of the havoc that might be wreaked if one of them goes wrong.
Still, it will be a fun outfit to work for. And along the way a lot of smart people will make a lot of money.
What's the difference between a hedge fund and a private-equity fund?
Easy. One speculates in bonds, stocks, currencies and commodities, using leverage and derivatives, while the other uses its own capital and borrowed money to buy companies, improve them, and then sell them on.
Well, not so fast. The evidence suggests that hedge funds and private-equity funds, the two hottest growth sectors of the financial universe for the past five years, are converging.
What seems to be emerging is a new type of alternative investment fund that shrugs aside traditional ideas of risk and seeks the highest returns any way it can.
Last week at a conference in Frankfurt, David Rubenstein, a co-founder of Carlyle Group, the world's third-biggest buyout firm, said private-equity and hedge funds may eventually converge. "Funds may be created that have the combined characteristics of private equity and hedge funds," Rubenstein said.
Carlyle, based in Washington, estimates that there are 9,000 hedge funds with investments worth about $1 trillion, while 3,000 private-equity funds have $150 billion in assets worldwide.
There is certainly no shortage of evidence of the two types of fund treading on each other's turf.
First, Carlyle itself has just announced plans to launch two hedge funds later this year. And New York-based Blackstone Group LP, which manages the world's biggest buyout fund, has already set up a hedge-fund unit, which oversees about $9 billion in assets. Meanwhile, Carl Icahn, a legendary Wall Street raider, is launching his own hedge fund.
$3.25 Billion Offer
Next, hedge funds are now acting more like buyout firms.
For example, Circuit City Stores Inc., the No. 2 electronics retailer, last month received a $3.25 billion takeover offer from Boston-based Highfields Capital Management LP, which manages hedge funds. Likewise, Beverly Enterprises Inc., a nursing-home chain, last month rejected a bid worth $1.41 billion from an investor group that included hedge fund Appaloosa Management LP.
Buying out whole companies because you think they are undervalued? That's the kind of work that used to be done by private-equity firms.
So how real is the convergence story?
Traditionally, hedge funds and private-equity firms have been seen as deadly rivals. They compete in two main ways.
They joust for talent. Any bright 20-something in the financial markets who wants to make a lot of money quickly (and that covers maybe 99 percent of them) faces a simple choice: work in hedge funds or in private equity. One of the tasks for both industries is to bring those people with their ideas on board.
'Alternative Investments'
And they compete for money. Most mainstream investors put the bulk of their capital into equities and bonds. They have a small amount allocated to a box marked "alternative investments" for which they are willing to accept higher risk for bigger returns. Both the hedge-fund and private-equity managers are chasing that same pool of footloose capital.
Yet the rivalry is rather like one of those fiercely contested local derbies between football teams from the same town. The competition is intense precisely because they are, in reality, playing on the same turf.
The two types of fund are now morphing into one another. Both have always, at root, been about the same thing: using financial engineering intelligently in the hope of generating returns higher than anything available from mainstream investments. Sometimes it works, and sometimes it doesn't. The plan is much the same.
20 Percent Fees
In time, hedge funds and private-equity firms may end up being the same thing. Some already are. Last month, the Financial Times reported that New York-based private-equity firm AEA Investors LLC plans to merge with Aetos Capital LLC, a real-estate and hedge-fund firm.
One of the key features of hedge funds is that they don't accept any artificial boundaries on their investments. If they see a profit, they pursue it. A hedge fund won't stop and say, "No, we can't do this because, even though it might make us some big bucks, that's not what hedge funds do." That would go against all their best instincts.
Meanwhile, for the private-equity guys, a hedge fund has a more flexible financial structure and more freedom in the kind of investments it makes. And it generates higher fees, which are typically 20 percent of any gains made. (Not that the private- equity firms were ever slouches at paying themselves.)
Three Trends
That's why we should expect to see three trends in the year ahead: more mergers between hedge and private-equity funds; more private-equity firms launching hedge funds; and more hedge funds acting like buyout funds. The result? A new breed of alternative investment, probably with the structure of a hedge fund, yet looks more like a buyout fund.
What's the risk profile of Mega-Hedge-Buyouts LLP? Don't even ask. No doubt, some regulators are already chewing their fingernails at the thought of the havoc that might be wreaked if one of them goes wrong.
Still, it will be a fun outfit to work for. And along the way a lot of smart people will make a lot of money.
Wednesday, July 23, 2008
Hoping for a Soul Mate
By Steve Watters
“Nothing has produced more unhappiness than the concept of a soul mate.”
While you served up freshness — alive with flavor.
Sweet but not sticky, bold but not bitter.
Fulfilling my appetite, you restored my strength.
Now the appetizers have led to the feast,
Where you’ve prepared an overflowing table before me
Flavors I never expected — aromas that overwhelm
And I long to sit at your table all the days of my life.
“Nothing has produced more unhappiness than the concept of a soul mate.”
That’s the opinion of Atlanta psychiatrist Frank Pittman in the March 2004 issue of Psychology Today. For the article “Great Expectations,” Polly Shulman interviewed Pittman and several other marriage experts who are concerned that the growing expectation for a perfect match is frustrating singles needlessly and threatening their chances of a satisfying marriage.
If you’re still single, do you think that when you marry, your spouse should be your soul mate first and foremost? And if so, do you believe there is a soul mate out there somewhere waiting for you? If you said yes to these questions, then you’re among the majority of never married twentysomethings in America today. When the National Marriage Project asked those questions, 94 percent said yes to the first question and 88 percent said yes to the second.
David Popenoe is the co-director of the National Marriage Project. He worries that today’s young adults may be “reaching even higher in their expectations for marriage.” He points out that the idea of a soul mate isn’t exactly new, but that “the centuries-old ideal of friendship in marriage, or what sociologists call companionate marriage, may be evolving into a more exalted and demanding standard of a spiritualized union of souls” (National Marriage Project, http://marriage.rutgers.edu/Publications/SOOU/TEXTSOOU2001.htm).
In her Psychology Today article, Shulman describes what singles are looking for in a soul mate as “the man or woman who will counter our weaknesses, amplify our strengths and provide the unflagging support and respect that is the essence of a contemporary relationship.”
That’s definitely what I was hoping for. I grew up convinced there was a soul mate out there for me. In fact, I filled journal after journal imagining such a person. Here’s one short piece I wrote lamenting my endless search for my other half:
I hoped for years for perfection.
In silent thoughts I auditioned thousands.
Reading the part for “mate,”
They danced but stumbled,
They sang but mumbled.
They stole my heart, but broke it in the last act.
And I scored them; with my “perfect” pen I scored them.
But I left the auditions lonely,
Sadly aware perfection is only
Made of hope and dream stuff.
The problem was, I had an undefined longing. I wanted someone to complete me, but I didn’t know how much I could ask for. I was like an eight year old at a buffet dying to just pull up a chair, fork in hand and help myself — but suspecting that might not be quite right.
Every time a relationship didn’t work out, I went back to my journal and asked the classic questions: Is there one person out there just for me? Can someone know and love the real me?
In graduate school, I met someone who seemed to answer those questions like never before. As I spent time with a girl named Candice, something clicked. The conversation poured out, flowing endlessly. I could feel my heart in my throat as we talked about things that really mattered to me and I actually got the response I longed for.
Sitting across the table from each other at the First Colony coffee bar in Norfolk, Virginia we dreamed about changing the world together. We talked about generational issues, postmodernism, writing, editing, music and everything we could think of. We saw our talents and interests fitting together in such a way that they seemed to make us more than the sum of our two puzzle pieces. I wanted to be with her all the time. She was attractive, fun and wonderful to do life with.
Despite the incredible connection that grew quickly between us, however, I wasn’t sure about something. “Is she really my soul mate?” I wondered. If she was my soul mate, why did I still find myself looking out of the corner of my eye at other classmates?
In her article, Shulman warns that because few partnerships can live up to the soul mate ideal, “the result is a commitment limbo, in which we care deeply for our partner but keep one stealthy foot out the door of our hearts.”
Reading Shulman, I was relieved to realize I wasn’t the only guy who ever felt that way. It’s embarrassing to admit it now, but at the point in which I finally connected with someone at a soul mate level, I still felt tempted to hold out just in case there was someone a little prettier, a little more exciting, a little more crazy about me.
Female readers may be thinking, “Why are guys like that? Why do they have an appetite for someone better than they could ever deserve?” I think it often comes down to this: Guys (and many girls for that matter) have a hard time sorting out an internal longing for someone with whom they can deeply connect from cultural expectations that often border on fantasy.
Fortunately, before my confusion steered me away from my best shot at a soul mate, a couple with some wisdom came along. The Morkens, one of my professors and his wife, took time to mentor Candice and I. Spending time with them, I began to recognize where my expectations had been distorted.
They assured me that it’s natural to want a deep connection with someone of the opposite sex. That it’s a longing that goes back to the garden. Ever since man had something taken out of him to form woman, it has been natural for him to seek out a woman with whom he can become one flesh. Despite decades of cultural messages downplaying differences between men and women, there are still God-designed distinctions that fit us together like puzzle pieces into one flesh. Furthermore, God gives us unique gifts and callings that make us more suited for some partners than others.
But the Morkens helped me to see how those natural desires for a meaningful connection were clouded by cultural expectations of beauty, excitement and self-actualization.
The Morkens talked about how magazines, TV, movies and music cause us to overvalue external beauty and to look beyond the real people in our lives. Because of careful editing, airbrushing and cosmetic efforts, we actually start to believe there are people out there with no faults or blemishes — that ultimate exterior beauty is not only possible, but the most important element in our desire for a soul mate.
The people we draw close to end up facing an impossible standard and are left hoping they can either make the cut or that some day someone will have grace for their imperfections. I needed to be reminded that my soul mate would, after all, be a real person — that she, just like me, would want to be loved despite imperfections.
The Morkens also reminded me that even a soul mate would not always be exciting. The reality of marriage, they explained, is emotional slow down, inevitable conflicts, painful sacrifice and lots of mundane activities like paying bills, cleaning up after kids and helping each other through sickness.
The other key reminder my mentors gave was that it wasn’t all about me — that my hope for someone to help me self-actualize (achieve my full potential) was grossly one-sided. While I was looking for a soul mate that could identify and meet all my needs, I was ill prepared to love my wife “just as Christ loved the church and gave himself up for her” (Ephesians 5:25). Christ, after all, was the only one capable of meeting my deepest needs. Instead of looking for that fulfillment from a woman, Christ was calling me to accept His love and then pour it out on the person He had led me to.
The best thing the Morkens did was help me see what I had in Candice despite my warped vision of a soul mate. Without being distracted by cultural expectations of perfection, endless excitement and self-actualization, I learned to appreciate the real joy of the connection I had with Candice. I could enjoy her beauty inside and out and see all the things that made us practically and spiritually compatible — or as the Morkens put it, “one of the best matches there ever was.”
Just before I proposed to Candice, I wrote her a poem called “Love Feast.” In it I described how my appetite for a deep meaningful connection in marriage had been ruined by the “fast food” of cultural soul mate expectations. It’s my hope that at least one guy out there reading this (even if it’s at the request of his girlfriend) will take a closer look at his desires for a soul mate so that he can see more clearly what he already has. Like I found, he may see that the lure of fast food can keep us from enjoying the truly gourmet.
I used to feast on simple fare
Tame, light spice … just heavy garnish.
Often I’d add a cup of sugar
But it seldom covered the bitter aftertaste.
It was hard to break old patterns,
Harder still to try new things.
But you were persistent and confident
Baby steps, baby bites and sips.
“Try this,” you offered often —
A great chef with the patience of Job.
“Too hot,” I’d say, “too spicy” I’d add
As I kept one eye open for a fast and easy meal.
While you served up freshness — alive with flavor.
Sweet but not sticky, bold but not bitter.
Fulfilling my appetite, you restored my strength.
Now the appetizers have led to the feast,
Where you’ve prepared an overflowing table before me
Flavors I never expected — aromas that overwhelm
And I long to sit at your table all the days of my life.
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