After the events of the past few years, many investors have concluded that investing in banks is ultimately a speculative exercise. After all, a great deal of management discretion is involved in estimating loan loss reserves and the opportunities for “creative” accounting are far greater in banking than in many other industries. As a result, investors have come to believe that banks are “black boxes” when it comes to asset quality and reserves and are not analyzable. However, in the midst of the wreckage, well regarded investors such as Bruce Berkowitz, Bill Ackman, and John Paulson have been finding value in the sector. Read this article for more details.
The Financial Times has published a five part video interview with Paul Volcker who is the head of President Obama’s Economic Recovery Advisory Board. Mr. Volcker discusses his proposed “Volcker Rule” which would limit the proprietary trading activities of commercial banks. For institutions such as Goldman Sachs that may wish to avoid the ban on proprietary trading, Mr. Volcker suggests that they will have to do so without the benefits of a commercial banking license. Read this article for more information and a link to the FT Video.
Earlier this week, we reviewed Andrew Ross Sorkin’s book Too Big To Fail which provides a very interesting inside account of the most important events of the financial crisis of 2008. In a speech at the Foreign Policy Association in November, Mr. Sorkin provided some background information regarding the process of writing his book and how he was able to get “behind the scenes” to tell the story as a “human drama”. Read this article for more details and to view a video of the speech.
Most outside observers had difficulty keeping up with all of the momentous events of the weekend of September 14-15, 2008 with all of the twists and turns that finally led to Lehman Brothers’ historic bankruptcy filing, Bank of America’s purchase of Merrill Lynch, and AIG’s bailout only a few days later. Ever since that tumultuous period, there has been a need for a comprehensive book covering the behind the scenes events. Andrew Ross Sorkin’s Too Big To Fail has succeeded in delivering exactly what is needed to gain a better understanding of what actually took place. Read this article for a detailed review and thoughts on “lessons learned”.