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Yet another Self-Important Blog.
Rohit Singh
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Fri, 10 Aug 2007
The Subprime Mess
Nice article in the NYT. Some quotes:
"Nothing within [our current system of leveraged finance] allows for the hedging of liquidity risk, and that is the problem at the moment."
"The new financial system is not the one the Fed was created to deal with, but it is the one it must try to handle."
In some places, however, the article's reasoning seems to be flawed:
"At the heart of the new system was a decision to have loans financed directly by investors, rather than indirectly by bank depositors. Investors, ranging from hedge funds to wealthy individuals, had confidence in the arrangement because most of the securities were blessed as very safe by the bond rating agencies, like Moodys and Standard & Poors.
There's a reason SEC limits the kind of people who can invest in hedge funds. The latter have often given their investors extremely good returns over the last few years. That kind of return comes with higher risk. Buyer beware.