“It’s basically the same people doing the same things all over again, only more intensely,” says Brian Reynolds, chief market strategist at Rosenblatt Securities. “In the long term we should be worried.”
“It’s basically the same people doing the same things all over again, only more intensely,” says Brian Reynolds, chief market strategist at Rosenblatt Securities. “In the long term we should be worried.”
As I was reading this article, I assured myself that new regulations curb the risky kinds of CDO transactions (not all of them are bad) that plunged the economy a few years ago. Then I read:
“Other regulations were supposed to require banks to retain a bit of the securities so they had some skin in the game and were aligned with the investors buying the deals. They could avoid that, however, if the underlying assets met certain high standards, such as minimum down-payments on mortgages. But recent proposed rules in this area excluded down-payment requirements, according to Rosner.
“Regulators are defining the standards so low that they don’t mean much,” he added. “And it feels like the banks have been slow-walking this so that, at some point, the industry can go back to selling these securities the way they always have.””
Long story short, investors need places to earn a return. With Central Banks keeping interest rates near zero (below zero in Japan’s case), banks will begin creating products for important customers (like institutional investors, pensions, etc.) who need a place to invest. Thus, this article isn’t too surprising. But, hopefully there are enough regulations in place to ensure the late-2000’s game of “ASB hot-potato” doesn’t repeat itself, and the governments of the world actually begin using fiscal policy to help out the global economy (as opposed to relying on central bank monetary policy to fix the economy).
You’re obviously voting Bernie for president now… right, Michael?
It was really surprising to learn how difficult it can be for an investor to get the appropriate data from the investment bank on the assets behind these deals. Requiring banks to retain a percentage of these securities would certainly better align the interests of the banks and investors.