Phorgy Phynance

More on credit from NP

with one comment

My invitation to move some of the discussion here to avoid flooding the thread “Discount Rate” on NP so far has not been taken advantage of so I just left the following comment:

[From RRP:]First of all, best wishes to your daughter on her birthday. One of the benefits of living in Southern California is close proximity to Disneyland.

Thanks dude. We had a blast. There must have been a “Goth” convention nearby or something because 10% of the people in the park looked like they were straight out of deathrock concert or something. An interesting contrast to Cinderella Smiley

Sorry if I misinterpreted your comments, but things like

“you should do it here, in the phorum instead of running to your blog

“If you weren’t so self congratulatory on all of your “calls” about the market”

“you’re coming across, to me at least, as a dilettante who has never taken a risk position in his life

“this is not some random trash bin on the internet where anyone can say whatever pops into their head and not have to defend it”

“The problem I have with second guessers is that they generally are the last to the party and the first to point out how shitty it is”

do not seem very conducive to a decent conversation. Not only is it grossly inaccurate, but I think we can all do without sheah like that. I really hope that it stops, but if you want to continue, please do so on the blog so that it does not pollute this phorum. I’m more than happy to answer there. It’s not running to the blog. It’s more like trying to filter sheah like that from here.

Like I said in my <tj>, I’m happy to answer to comments here, but just consider that others may not be interested in our tete a tete and think about taking it elsewhere (you know where).

Anyway, so here’s your comment:

Dude, what started me on this thread was some throw away comment you made about Bernanke at least not being as bad as Greenspan. I asked you to elaborate, you responded about how Greenspan would have cut the rate 1% already. My response was to post data that shows the fed reaction in 1998, which I felt to be mos t similar to this crisis; 3 cuts starting 2 months after the onset of the crisis. You countered that 2001 was the best comp to this market, now I didn’t agree with you on that, and I told you why 1998 felt more like this than 2001. If you want to believe that I’m just saying you’re a n00b and should shut up, your perogative. What I’m really meaning to say is that you’re totally lacking perspective in most of your views. Perspective that comes with experience. It is showing plainly.

When you lack direct perspective, the best you can do is to pay attention to others who have perspective. I didn’t post a link to the source of some of my thoughts because I’ve been accused of posting links simply to suport my arguments. WTP. In grad school, I called that citing references, but I guess that doesn’t fly in the real world of old timers.

kr picked up on it. No surprise. I was referring to Roubini’s latest stuff. Sure he is a certified bear and has been for a long time. In fact, he’s so gloomy even I had to unsubscribe from his RSS feed because I couldn’t handle it any more. Just because he’s gloomy doesn’t mean you shouldn’t pay attention to him once in a while though. He is a super sharp guy and hearing him speak on BBG TV did impress me. He is certainly not a whack job.

Worse than LTCM: Not Just a Liquidity Crisis; Rather a Credit Crisis and Crunch

That is a fantastic article and I agree with him wholeheartedly. When you held up 1998 as a comparison, I was immediately skeptical because it’s in direct contrast to someone else that I think knows his stuff better than either of us.

It really sucks when you compare me to these “second guessers” or those “late to the party”. Have a look at what I wrote here:

Talk about giants: David Richards

I was concerned (for good reason) about credit markets going back to no later than December last year. It wasn’t until the following March-April that I actually had my models built to give some empirical support. I started trying to make a case and practically begged my research directors to let me work with the high yield analysts, but was shot down because of other high-priority projects going on. When Bear Stearns’ HFs imploded things were obvious.

Now, I know I’ve said that at least twice now and some are definitely sick of hearing it, but PLEASE do not think I’m being self congratulatory. I said some things which irritated some people who were probably losing money and then started seeing some baseless judgements coming down on me. I think I’m entitled to stand up and try to set the record straight without these straw man jabs.

There are MANY valid reasons to criticize me, but “self congratulatory”, “second guesser” and certainly “dilettante who has never taken a risk position in his life” are not among them. You yourself named a particularly strong counter example. Yeah, I am %$#%ing scared about my career decision. I left a cushy place working with fantastic people. I had my own plush office with a great view and my own phriggin secretary for Cartan’s sake, but I had my reasons. Now I couldn’t find a post-it note to save my life, but I’ve got a good title with a good company with a significantly better mark to market. We’ll see how I pull through, but one thing I know about myself is that I’m a survivor. I’ve come a long ways from the days of being practically homeless, living in the physics study room and surviving off microwaved potatoes.

Anyway, I hope you are somewhat satisfied with my previous post regarding some of the differences between today and 1998 (which were borrowed heavily from Roubini… no apologies for that). It’s not like subprime mortgages are such a huge part of the markets (they obviously are not) and we’re seeing “contagion”. It’s more like a bunch of sand castles of lax credit standard be swallowed one by one in a rising tide of risk premium. Subprime was the first such sand castle to go. High yield is probably next.

The “I warned you” comment was certainly tongue in cheek, but what happened? The market did shut down, right? It’s good you got those two deals out in July, but where are they trading now? In my opinion, the CDO market is history. Existing (tranched) deals will probably need to be unpackaged into the more vanilla (untranched) structured products from which they were born. Is there any precedent for that? Has a CMO ever gotten deconstructed into its constituent assets? [Not a rhetorical question. I’d like to know.]

Anyway. Wild times. I may be out of a job sooner than you know, but even if that were to happen, I would still think I made the right decision to leave my previous place.

Cheers

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Written by Eric

August 19, 2007 at 9:27 pm

One Response

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  1. “Has a CMO ever gotten deconstructed into its constituent assets? [Not a rhetorical question. I’d like to know.]”
    not to my knowledge, but i could happen, I have seen prospectuses that allow for defeasance, basically if the tranches can be bought for less than the assets in the SPV can be sold for.

    jck

    August 20, 2007 at 4:55 am


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