Monday, February 11, 2008

Derivative sewage

With the mess going on at AIG, I thought these comments by American Century's Jim Keegan in today's WSJ was more than a little interesting:

Deal Journal: What’s your take on the markets today?

Jim Keegan: The employment shoe is the next to drop. The question I wanted to ask is, if this country is undercapitalized, why have there not been more massive layoffs on Wall Street? It was an origination-and-distribution model. Now it’s a risk-retention model.
I think the write-downs are being sized to the amount of capital the banks can raise. Reserving for losses is an art not a science. It seems all they’re doing is taking write-downs that are absolutely known today. There’s no forecasting.

DJ: Certain firms seem to have gotten it right, like Goldman Sachs.

JK:I’m not going to talk about specific firms. But for some of them, you have to wonder why they haven’t monetized their hedged positions. Either they believe the hedged positions are going to get a lot worse, or if they do monetize them, they’re going to bankrupt their counterparties. it’s probably a little bit of both.

1 comment:

Anonymous said...

What the hell is going on at Morgan Stanley?