Re: The entrails of finance
Michael: I did not even know anything about CDOs before I read the Partnoy book. Welcome to the real world of finance! For those of you who are interested in CDOs, that is, Collateralized Debt Obligations, here is a good article: http://www.stanford.edu/~duffie/ddng.pdf Parts of it are quite mathematical but there is lots of useful information there and if you are not interested in the math part, just skip that without missing much. Also of interest to some may be this: http://www.stanford.edu/~duffie/canabarro-duffie_020603.pdf Best, Sabri
Re: The entrails of finance
Duffie shows the sophisticated math behind these derivatives. Partnoy shows that the purchasers don't have the foggiest notion of what they are buying; they only see a high rate of return --- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
Re: The entrails of finance
Michael: Partnoy shows that the purchasers don't have the foggiest notion of what they are buying; they only see a high rate of return This is the main idea. If they knew what they were buying, would they buy them in the first place, at least, at the price they are buying? CMOs (Collateralized Mortgage Obligations backed by agency loans) and Whole Loans (Collateralized Mortgage Obligations backed by private loans) were like that too, at least, until the mid-1990s. If you look at the early 1990 deals, you see in them many screw you tranches specifically designed by the sell-side to rip the buy-side off. Eventually, the buy-side discovered what was going on, thanks to disasters such as Orange County, Askin and the like. Nowadays, CMOs are not as popular as they once were. And we will see what will happen to CDOs. They seem to be bigger than CMOs though. CMOs were an American thing. CDOs are global. I bet there are many disasters waiting to happen. Sabri
Re: The entrails of finance
Yes, but the victims are likely to be pension funds and public agencies. On Thu, Dec 25, 2003 at 12:12:58PM -0800, Sabri Oncu wrote: And we will see what will happen to CDOs. They seem to be bigger than CMOs though. CMOs were an American thing. CDOs are global. I bet there are many disasters waiting to happen. Sabri -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
Re: The entrails of finance
Michael: Yes, but the victims are likely to be pension funds and public agencies. Quite likely. But nowadays I don't follow the financial markets as closely as I used to, so I am not certain who exactly will the victims be. Who are the main purchasers of these CDOs, does anyone know? If pension funds are among them, then they are in trouble since they are technically the least sofisticated, after the insurance companies, I must add. I doubt that they have the right people to assess the risks associated with such complex financial instruments. Sabri
Re: The entrails of finance
Portnoy wrote me to say that insurance companies were the purchasers of much of the Enron generation of CDOs. I assume that they have wised up. The WSJ article I referenced, suggested that Asians are now buying the junk. They might think that if it is all gussied up with math, it must be serious. On Thu, Dec 25, 2003 at 01:52:46PM -0800, Sabri Oncu wrote: Michael: Yes, but the victims are likely to be pension funds and public agencies. Quite likely. But nowadays I don't follow the financial markets as closely as I used to, so I am not certain who exactly will the victims be. Who are the main purchasers of these CDOs, does anyone know? If pension funds are among them, then they are in trouble since they are technically the least sofisticated, after the insurance companies, I must add. I doubt that they have the right people to assess the risks associated with such complex financial instruments. Sabri -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
