Why should INSTITUTIONS INVEST IN CDOs at all? – Compliments of Ed Grebeck
Edward J. Grebeck, Chief Executive Officer Tempus Advisors strategist in the global debt markets, NYU Lecturer in credit derivatives, and Chairman of StamSteer is a global debt market strategist and author. Ed has contributed to this blog for your information and research a copy of " Why should INSTITUTIONS INVEST IN CDOs at all? [Euromoney, April 2006]. This prescient warning of Structured Finance illiquidity, conflicts of interest, flawed pricing models and today's trillion dollar losses, still rings true.
His original article summarized that: “The CDO asset class grows and grows, as does the variety of underlying assets comprising collateral. Today, CDO investment is more like 'business process out-sourcing' of part of your portfolio. So price CDO investments “with reference to equity returns” .Before buying CDOs, institutions would do well to consider comparable alternatives, such as investing in 'credit-focused' hedge funds or building their own teams to selectively exploit CDO and other opportunities in expanding global credit markets.”
Ed and I have discussed his comments that - It is still a house of cards; credit markets will never be the same.
• Without upgraded, new REGULATIONS, PRACTICES and PEOPLE-- additional, perhaps greater, losses lie ahead in tomorrow's debt markets.
• Because, Regulators have not addressed fundamental issues on rating agencies, financial instruments and the industry
• Clearly, the market remains skeptical of structured finance ratings and quantitative risk management technique as done by ratings agencies and banks.
• There is a crying need for a focus on clear explanations of corporate sector risk management. Ed advocates “thoroughly reviewing assumptions behind model analytics and further, motivations behind your assumptions. Look between the weeds, to prevent loss and identify opportunities for value creation”.
I am talking to Ed about his contributing a follow on article he wrote in 2007 for your access. You will also find it interesting in that most of his comments are still valid today.
His original article summarized that: “The CDO asset class grows and grows, as does the variety of underlying assets comprising collateral. Today, CDO investment is more like 'business process out-sourcing' of part of your portfolio. So price CDO investments “with reference to equity returns” .Before buying CDOs, institutions would do well to consider comparable alternatives, such as investing in 'credit-focused' hedge funds or building their own teams to selectively exploit CDO and other opportunities in expanding global credit markets.”
Ed and I have discussed his comments that - It is still a house of cards; credit markets will never be the same.
• Without upgraded, new REGULATIONS, PRACTICES and PEOPLE-- additional, perhaps greater, losses lie ahead in tomorrow's debt markets.
• Because, Regulators have not addressed fundamental issues on rating agencies, financial instruments and the industry
• Clearly, the market remains skeptical of structured finance ratings and quantitative risk management technique as done by ratings agencies and banks.
• There is a crying need for a focus on clear explanations of corporate sector risk management. Ed advocates “thoroughly reviewing assumptions behind model analytics and further, motivations behind your assumptions. Look between the weeds, to prevent loss and identify opportunities for value creation”.
I am talking to Ed about his contributing a follow on article he wrote in 2007 for your access. You will also find it interesting in that most of his comments are still valid today.
Posted by FiscalDoctor com at 9/17/2009 12:28 PM 
Categories: contingency planning, business growth, risk, Enterprise Risk Management, corporate governance, due diligence, global risk, ERM, Profitability
Tags: contingency planning business growth profitability risk Enterprise Risk Management due diligence global risk ERM corporate governance
Categories: contingency planning, business growth, risk, Enterprise Risk Management, corporate governance, due diligence, global risk, ERM, Profitability
Tags: contingency planning business growth profitability risk Enterprise Risk Management due diligence global risk ERM corporate governance
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