Complicated Assets
I'm also reminded of a successful businessman whose advice is to "buy what you know." Often, I think people don't heed this advice, but when there's a flight to liquidity, they sure do. "You want me to buy a what?!" one imagines traders without the expertise in CDOs, CDSs, super-senior tranches, and the like asking their counterparties.
Thus, precisely when you wish there was a liquid market for these complex securities is precisely when a) people don't want to buy things they can't comprehend, and b) no-one will trust you an inch to explain it to them! (After all, you moron, you thought you understood them and you just got destroyed the economy and your institution.) ¶ 7:47 PM
Tuesday, December 2, 2008
I was reading Matthew Yglesias and Ezra Klein complain about the complexity of understanding the assets involved with the banking meltdown. These are smart people. And while it may be true that the underlying bets are (in retrospect) easily identified as bad, the reality is that it is hard to figure out the securities involved.
I'm also reminded of a successful businessman whose advice is to "buy what you know." Often, I think people don't heed this advice, but when there's a flight to liquidity, they sure do. "You want me to buy a what?!" one imagines traders without the expertise in CDOs, CDSs, super-senior tranches, and the like asking their counterparties.
Thus, precisely when you wish there was a liquid market for these complex securities is precisely when a) people don't want to buy things they can't comprehend, and b) no-one will trust you an inch to explain it to them! (After all, you moron, you thought you understood them and you just got destroyed the economy and your institution.) ¶ 7:47 PM
