[A-List] On holidays.. please set nomail

[<nestorgoro@xxxxxxxxxxxxxxx>]

Please Michael, I am on holidays. Could you set my sub to the a-list to no mail condition. Thank you.

Néstor Gorojovsky

----- Mensaje original -----
De: Michael Keaney <michael011@xxxxxxxxxxx>
Fecha: Viernes, Enero 26, 2007 7:36 am
Asunto: [A-List] Leveraged to the hilt

> The unease bubbling in today's brave new financial world
> By Gillian Tett
> Financial Times: January 19 2007
> 
> Last week I received an e-mail that made chilling reading. The author
> claimed to be a senior banker with strong feelings about a column I
> wrote last week, suggesting that the explosion in structured finance
> could be exacerbating the current exuberance of the credit 
> markets, by
> creating additional leverage.
> 
> "Hi Gillian," the message went. "I have been working in the leveraged
> credit and distressed debt sector for 20 years . . . and I have never
> seen anything quite like what is currently going on. Market 
> participantshave lost all memory of what risk is and are behaving 
> as if the
> so-called wall of liquidity will last indefinitely and that volatility
> is a thing of the past.
> 
> "I don't think there has ever been a time in history when such a large
> proportion of the riskiest credit assets have been owned by such
> financially weak institutions . . . with very limited capacity to
> withstand adverse credit events and market downturns.
> 
> "I am not sure what is worse, talking to market players who generally
> believe that 'this time it's different', or to more seasoned 
> players who
> . . . privately acknowledge that there is a bubble waiting to 
> burst but
> . . . hope problems will not arise until after the next bonus round."
> 
> He then relates the case of a typical hedge fund, two times levered.
> That looks modest until you realise it is partly backed by fund of
> funds' money (which is three times levered) and investing in deeply
> subordinated tranches of collateralised debt obligations, which 
> are nine
> times levered. "Thus every ?1m of CDO bonds [acquired] is effectively
> supported by less than ?20,000 of end investors' capital - a 2% price
> decline in the CDO paper wipes out the capital supporting it.
> 
> "The degree of leverage at work . . . is quite frankly 
> frightening," he
> concludes. "Very few hedge funds I talk to have got a prayer in 
> the next
> downturn. Even more worryingly, most of them don't even expect one."
> 
> Since this message arrived via an anonymous e-mail account, it 
> might be
> a prank. But I doubt it. For, while I would not normally write an
> article about responses to an article (it is the journalist's 
> equivalentof creating derivatives of derivatives) I am breaking 
> this rule, since I
> have recently had numerous e-mails echoing the above points. And 
> most of
> these come from named individuals, albeit ones who need to stay
> anonymous, since they work for institutions reaping profits from 
> modernfinance.
> 
> There is, for example, a credit analyst at a bulge-bracket bank who
> worries that rating agencies are stoking up the structured credit 
> boom,with dangerously little oversight. "[If you] take away the three
> anointed interpreters of 'investment grade', that market folds up 
> shop.I wonder if your readers understand that . . . and the non-
> trivialconflict of interest that these agencies sit on top of as 
> publiclylisted, for-profit companies?"
> 
> Then there is the (senior) asset manager who thinks leverage is
> proliferating because investors believe risk has been dispersed so 
> wellthere will never be a crisis, though this proposition remains 
> far from
> proven. "I have been involved in [these] markets since the early 
> days,"he writes. "[But] I wonder if those who are newer to the 
> game truly
> understand the impact of a down cycle?"
> 
> Another Wall Street banker fears that leverage is proliferating so 
> fast,via new instruments, that it leaves policy officials 
> powerless. "I hope
> that rational investors and asset prices cool off instead of collapse,
> like they did in Japan in the 1990s," he writes. "But if they do,
> monetary policy will be useless."
> 
> To be fair, amid this wave of anxiety I also received a couple of
> "soothing" comments. An analyst at JPMorgan, for example, kindly
> explained at length the benefits of the CDO boom: namely that these
> instruments help investors diversify portfolios; provide long-term
> financing for asset managers and reallocate risk.
> 
> "Longer term, there may well be a re-pricing of assets as the economy
> slows and credit risk increases," he concludes. "But. there is a very
> strong case to be made that the CDO market has played a major role in
> driving down economic and market volatility over the past 10 
> years." Let
> us hope so. And certainly investors are behaving as if volatility is
> disappearing: just look at yesterday's remarkable movements in credit
> default swaps. But if there is any moral from my inbox, it is how much
> unease - and leverage - is bubbling, largely unseen, in today's Brave
> New financial world. That is definitely worth shouting about, even 
> amidthe records now being set in the derivatives sector.
> 
> 
> -- 
> http://www.fastmail.fm - mmm... Fastmail...
> 
> 
>