Bloomberg: 'Ghost of 1994' looms over Asia

[Temperament]

Some information on moral hazard:

http://en.wikipedia.org/wiki/Moral_hazard

My only concern is if rating agencies are liable for their opinions, then investors are having a fantastic deal as their downside are covered.

I think the extent of rating agencies' liability is important IMO.
Just my 2 cents worth...

Hmm...
If moral hazard can be a legalized, how nice. Sweet dream.
But i think banks made use of this Moral_hazard idea only from 2005 onwards. That is banks started subprime loan and repackaged into some exotic CDO bonds only in 2005. Maybe even earlier in 2003.
i know now what is Moral-Hazard. Make sure i don't apply this tactical idea on someone.
"Bu Yeow Hai Wo Leh". That is when someone got the Moral hazard apply on him. Ha! Ha!
Do i understand the idea right? Please comment!

{In economic theory, a moral hazard is a situation where a party will have a tendency to take risks because the costs that could incur will not be felt by the party taking the risk. In other words, it is a tendency to be more willing to take a risk, knowing that the potential costs or burdens of taking such risk will be borne, in whole or in part, by others.}

[natnavi]

you are too light on credit rating agencies. just like whistle blowing, just because it is the employer, no one should blow the whistle?

credit rating agencies should have fiduciary duty to investors using their ratings if they don't have it now. They are providing a professional opinion, not a general opinion from anyone on the street.

Not to defend the rating agencies but if they are liable for their opinions, wouldn't that create a moral hazard issue?

care to elaborate more on the moral hazard issue?

---

you are too light on credit rating agencies. just like whistle blowing, just because it is the employer, no one should blow the whistle?

credit rating agencies should have fiduciary duty to investors using their ratings if they don't have it now. They are providing a professional opinion, not a general opinion from anyone on the street.

Basically, the credit agencies were persuaded to treat housing loan bonds as corporate loans that can not all default at the same time and there were no history of collapse of National Housing loans before. Have you realised the credit agencies have not been prosecuted or sued for any part in the GFC fiasco. (Correct me if i am wrong).
If you want to apportion whose guilt is the greatest to the banks or credit agencies or institutions like Morgan Stanley, i really don't know? But imo, the source or who started it should be the most guilty. i am sure you know which party i am referring to. i know you have a different position. It's alright to me because we are not judges in the court who will give the final verdict.

I can't agree on the source should be most guilty. Are the gun manufacturers more guilty than the criminals who did the crime?

without inference from the investment banks making the credit rating agencies give them high grade, the act of investment banks was totally reasonable. They were to fulfill the demand of a certain group of investors. They disclosed the risk within. If my customer wants more of my product, should I make more for my customers or should I refuse to do it if my customer accepts them without my influence?

Is selling a property to someone who can't afford it illegal? Is packaging a subprime mortgage into a CDO illegal? Did investment banks force the investors to buy their subprime CDOs?

Or from another angel, without the blessing of credit rating agencies, the subprime CDO market was much smaller.

We can argue that probably the investment banks and the credit rating agencies were corrupted, but it is much harder to prove that.

Hi freedom, I fully agree with you. The only problem was whether the investment banks fully disclose the risks to their clients. They were "indirectly" telling their clients that these were "AAA" products. The clients were made to believe such stories because, 1) the clients did not know that there was a conflict of interest between the rating agencies and the investment bank, and 2) the invesment banks were indeed orchastrating this whole thing to make quick money.

In the case of Goldman Sach, they went one step ahead of all the other investment banks. Knowing that these CDOs were toxic, they bet against them by insuring them through AIG. In essence, GS sold toxic assest to their clients, marketing them as "AAA", and then they went ahead to bet against their clients because they know these were toxic. GS is truely a class of its own, and that is why they are so good at making money.

Seriously guys, go watch the doucmentry on youtube. It will really help you understand the whole thing.

[Temperament]

If i am not wrong, GS only did the "U-Turn" in late 2007; before that GS was doing the same like others.

[Jacmar]

You should also read the book by the guy who quits GS. It will give you a behind the scene look at the hanky panky stuff. good read.

[freedom]

Some information on moral hazard:

http://en.wikipedia.org/wiki/Moral_hazard

My only concern is if rating agencies are liable for their opinions, then investors are having a fantastic deal as their downside are covered.

I think the extent of rating agencies' liability is important IMO.
Just my 2 cents worth...

I don't think fiduciary duty extends to that far. credit rating agencies have their fiduciary duty to its users to the extent that it is their professional opinion.

The same for lawyers, doctors, IMO.

The lawyer has certain responsibility to advise whether a person should plea for guilty or not based on their professional knowledge. Still the person can decide whether to use this lawyer or the other one.

[CityFarmer]

Latest update on the law suit.

S&P wins transfer of ratings lawsuits to New York

The U.S. Judicial Panel on Multidistrict Litigation said it would promote efficiency to move the lawsuits by 14 U.S. states and Washington, D.C. to a federal court in New York, where they will be overseen by U.S. District Judge Jesse Furman.

It rejected the states' arguments that moving the lawsuits to New York, where McGraw Hill is based, would be inconvenient for them and was unnecessary in light of the historic cooperation among state attorneys general.

http://www.reuters.com/article/2013/06/0...Z120130606

[Temperament]

You should also read the book by the guy who quits GS. It will give you a behind the scene look at the hanky panky stuff. good read.

Or books by Michael Lewis: "
I'd stumbled into a job at Solomon Brothers in 1985, and stumbled out, richer, in 1988,....

---

http://en.wikipedia.org/wiki/Moral_hazard

Hmm...
If moral hazard can be a legalized, how nice. Sweet dream.
But i think banks made use of this Moral_hazard idea only from 2005 onwards. That is banks started subprime loan and repackaged into some exotic CDO bonds only in 2005. Maybe even earlier in 2003.
i know now what is Moral-Hazard. Make sure i don't apply this tactical idea on someone.
"Bu Yeow Hai Wo Leh". That is when someone got the Moral hazard apply on him. Ha! Ha!
Do i understand the idea right? Are the banks guilty in the first place?
Your comment please?

{In economic theory, a moral hazard is a situation where a party will have a tendency to take risks because the costs that could incur will not be felt by the party taking the risk. In other words, it is a tendency to be more willing to take a risk, knowing that the potential costs or burdens of taking such risk will be borne, in whole or in part, by others.}

[finnfinn]

You should also read the book by the guy who quits GS. It will give you a behind the scene look at the hanky panky stuff. good read.

Or books by Michael Lewis: "
I'd stumbled into a job at Solomon Brothers in 1985, and stumbled out, richer, in 1988,....

---

http://en.wikipedia.org/wiki/Moral_hazard

Hmm...
If moral hazard can be a legalized, how nice. Sweet dream.
But i think banks made use of this Moral_hazard idea only from 2005 onwards. That is banks started subprime loan and repackaged into some exotic CDO bonds only in 2005. Maybe even earlier in 2003.
i know now what is Moral-Hazard. Make sure i don't apply this tactical idea on someone.
"Bu Yeow Hai Wo Leh". That is when someone got the Moral hazard apply on him. Ha! Ha!
Do i understand the idea right? Are the banks guilty in the first place?
Your comment please?

{In economic theory, a moral hazard is a situation where a party will have a tendency to take risks because the costs that could incur will not be felt by the party taking the risk. In other words, it is a tendency to be more willing to take a risk, knowing that the potential costs or burdens of taking such risk will be borne, in whole or in part, by others.}

No offence ah. But actually nothing illegal about moral hazard. We are actually faced with moral hazard in our daily life. For eg., assuming I am a manager. I check my staff work countless times to make sure it's error free. I actually encourages moral hazard because my staff will continue to be sloppy in her work and I pay the price for spending the time checking her work.

Similarly, looking at 2008, moral hazard also apply. Loans are dished out because the originators dont pay the price if loans go bad. Investors of the cdos do. Because the way things were done, we have moral hazard. Now we add another reason to 2008....

Hope this helps..

[Temperament]

You should also read the book by the guy who quits GS. It will give you a behind the scene look at the hanky panky stuff. good read.

Or books by Michael Lewis: "
I'd stumbled into a job at Solomon Brothers in 1985, and stumbled out, richer, in 1988,....

---

http://en.wikipedia.org/wiki/Moral_hazard

Hmm...
If moral hazard can be a legalized, how nice. Sweet dream.
But i think banks made use of this Moral_hazard idea only from 2005 onwards. That is banks started subprime loan and repackaged into some exotic CDO bonds only in 2005. Maybe even earlier in 2003.
i know now what is Moral-Hazard. Make sure i don't apply this tactical idea on someone.
"Bu Yeow Hai Wo Leh". That is when someone got the Moral hazard apply on him. Ha! Ha!
Do i understand the idea right? Are the banks guilty in the first place?
Your comment please?

{In economic theory, a moral hazard is a situation where a party will have a tendency to take risks because the costs that could incur will not be felt by the party taking the risk. In other words, it is a tendency to be more willing to take a risk, knowing that the potential costs or burdens of taking such risk will be borne, in whole or in part, by others.}

No offence ah. But actually nothing illegal about moral hazard. We are actually faced with moral hazard in our daily life. For eg., assuming I am a manager. I check my staff work countless times to make sure it's error free. I actually encourages moral hazard because my staff will continue to be sloppy in her work and I pay the price for spending the time checking her work.

Similarly, looking at 2008, moral hazard also apply. Loans are dished out because the originators dont pay the price if loans go bad. Investors of the cdos do. Because the way things were done, we have moral hazard. Now we add another reason to 2008....

Hope this helps..

In Singapore context, is our banks allow to make subprime loan in the 1st place, and then repackage as something people will buy?

[finnfinn]

You should also read the book by the guy who quits GS. It will give you a behind the scene look at the hanky panky stuff. good read.

Or books by Michael Lewis: "
I'd stumbled into a job at Solomon Brothers in 1985, and stumbled out, richer, in 1988,....

---

http://en.wikipedia.org/wiki/Moral_hazard

Hmm...
If moral hazard can be a legalized, how nice. Sweet dream.
But i think banks made use of this Moral_hazard idea only from 2005 onwards. That is banks started subprime loan and repackaged into some exotic CDO bonds only in 2005. Maybe even earlier in 2003.
i know now what is Moral-Hazard. Make sure i don't apply this tactical idea on someone.
"Bu Yeow Hai Wo Leh". That is when someone got the Moral hazard apply on him. Ha! Ha!
Do i understand the idea right? Are the banks guilty in the first place?
Your comment please?

{In economic theory, a moral hazard is a situation where a party will have a tendency to take risks because the costs that could incur will not be felt by the party taking the risk. In other words, it is a tendency to be more willing to take a risk, knowing that the potential costs or burdens of taking such risk will be borne, in whole or in part, by others.}

No offence ah. But actually nothing illegal about moral hazard. We are actually faced with moral hazard in our daily life. For eg., assuming I am a manager. I check my staff work countless times to make sure it's error free. I actually encourages moral hazard because my staff will continue to be sloppy in her work and I pay the price for spending the time checking her work.

Similarly, looking at 2008, moral hazard also apply. Loans are dished out because the originators dont pay the price if loans go bad. Investors of the cdos do. Because the way things were done, we have moral hazard. Now we add another reason to 2008....

Hope this helps..

In Singapore context, is our banks allow to make subprime loan in the 1st place, and then repackage as something people will buy?

Vaguely remember the minibond saga years back. Understand that is somewhat different but the spirit is the same.

I know bundling of credit is still done. But at the point of bundling, the underlying credit can still be performing. In many occasions, what started as prime can be sub prime later. Think focus now is on disclosures. In any case, investors must still conduct their due diligence in their investment decisions.