John At The Center

AIMA Chief Executive Andrew Baker said the days of one man and a dog running a hedge fund were over and only those with an “unimpeachable track record”, who could build an infrastructure team around them and who could attract service providers to support them were going to make it.”Some have tried and some have failed already. I think its a tough environment,” London-based Baker told Reuters during a visit to Hong Kong. “The number of people who have the credentials to make it properly with a decent launch of $250 million or above is very small,” said Baker, who left Schroder Investment in 2007 to join the AIMA.

via Prop desk spin-outs face tough road ahead – AIMA CEO | Reuters.

They discovered that trading from the optimal point would reduce the time it takes for information to travel between the two exchanges,

via Speed Trading May Be Heading Out to Sea, Literally – CNBC.

Citadel and hundreds of other hedge funds are struggling to hit their so-called high water marks, their historic highs at which they can begin collecting profits again. The research firm HedgeFund.net estimates that roughly 35 percent of the 2,500 funds that have continuously reported since 2008 have not recovered — with smaller hedge funds dominating the list.

via Many Hedge Funds Still Smarting From the Financial Crisis – NYTimes.com.

Asness thinks Nassim Taleb is right about the increasing frequency of Black Swan events. And quants still face severe threats from market volatility: according to a report from Morgan Stanley, quant funds betting against momentum stocks in Europe took a beating in early January that reminded many of the 2007 crisis, causing as much as a 10 percent overall loss. “In only a few days,” the report said, a number of quants “experienced unprecedented losses in seemingly ‘normal’ market conditions.” But Asness thinks the episode was overblown, and says AQR was unaffected by it. And he does not believe that quants, or other more traditional hedge funds, had any role in the catastrophic events of 2008. “The crash was about credit and real estate,” he said. That seems to be the conventional wisdom, at least as reflected by the report of the Financial Crisis Inquiry Commission. “If you look at our history–even AQR’s aggressive hedge funds–we’ve made money, and we have smoothed the path,” he said.

via Man vs. Machine on Wall Street: How Computers Beat the Market – Business – The Atlantic.

The IMF recently held a conference entitled Macro and Growth Policies in the Wake of the Crisis. Here’s a video summary from Michael Spence, former Stanford School of Business dean and winner of the 2001 Nobel Memorial Prize in Economic Sciences. It includes Spence’s thoughts about inflation and the coming divergence between growth and employment in the developed world:

via Freakonomics » Should High-Frequency Trading Be Banned? One Nobel Winner Thinks So.

In his most recent column, Paul Krugman declares victory in the stimulus vs austerity debate, citing Britains crappy economy as evidence that “austerity” is for the birds.After prime minister David Cameron swept to power, he promptly cut spending, and, since then, the UKs economy–and tax revenues–have taken a dive.

via KRUGMAN: See? Keynes And I Were Right. Austerity Is A Terrible Idea.

MERS was mostly about speed — and profits. MERS, founded 16 years ago by Fannie Mae, Freddie Mac and big banks like Bank of America and JPMorgan Chase, cut out the county clerks and became the owner of record, no matter how many times loans were transferred. MERS appears to sell loans to MERS ad infinitum.

This high-speed system made securitization easier and cheaper. But critics say the MERS system made it far more difficult for homeowners to contest foreclosures, as ownership was harder to ascertain.

via MERS, the Mortgage Holder You Might Not Know – NYTimes.com.

A far better approach would be to have in place a solid, general economic safety net that helps all families whose economic base is disrupted through forces beyond their control, whether such disruptions originate in foreign trade or domestic developments.

Unfortunately, too many economists decry that approach as a welfare state –- and that makes selling the case for free trade that much harder.

via Uwe E. Reinhardt: Continuing the Conversation on Free Trade – NYTimes.com.

This has been a long-standing bone of contention between universal banks, such as JPMorgan and Citigroup, and former securities firms, such as Goldman Sachs and Morgan Stanley.

The rule change would prohibit banks from tying the availability or terms of credit to the purchase of other products and services. Banks could still respond to requests from customers, however.

A borrower could, for example, make clear that decisions on future underwriting or advisory business will be influenced by lending terms.

The Financial Accounting Standards Board is set to reconsider proposals on how loans and credit facilities are first recorded on a bank’s books early next month, said people familiar with the matter.

The proposed rules, on what is known as initial measurement, would require banks to make clear where the transaction price of a loan differs from its fair-market value. In some cases, the difference could hit a bank’s earnings.

These formed part of the US standard-setter’s proposals on fair-value accounting, released last year. The body in January backtracked on a broader move to require banks to value their loan books according to market prices.

It is still an open question whether FASB will also reverse course on initial measurement.

Goldman Sachs – a rare advocate of fair-value accounting among banks – in a letter to the FASB last year backed a change to clarify “the linkage between lending and investment banking often described as ‘relationship lending’ ”.

The bank went on to argue that “current rules are deficient when lending and investment banking activities are linked”.

Those in support of a change argue that below-market lending amounts to the deliberate mispricing of risk.

Critics counter, however, that banks should not incur losses where lending is made in the course of ordinary business.

In a letter to the FASB, Bank of America called for an exemption in regard to relationship lending, arguing that “financial institutions may originate loans at below-market interest rates to build or improve customer ­relationships and to generate goodwill in the communities within which the institutions do business”.

More fundamentally, some banks maintain that determining a market price for such loans is difficult because they are rarely, if ever, sold.

The international accounting body must also address this issue after defining fair value as an exit or sale price under new rules.

Currently, fair value is usually taken to be an entry price for recording loans on a bank’s books.

via FT.com / Companies / Banks – US banks face fresh scrutiny on lending.

Billions of dollars of angel debt across thousands of investments is coming due in 2011 and 2012 without any ability to be repaid or any prospect of conversion. The numbers are hard to come by for angel deals, so a lot of this is based on macro-trends and conversations with attorneys and startups, but maybe 5% of convertible debt will experience a proper conversion event.

via TheFunded.com: The Year of the Startup Default.