Corporate Financing Focus: Looking Across the Abyss, Cdos Will Come Back in Simpler Form, Some Market Participants Say
Global Finance › Vol. 22 Nbr. 3, March 2008
Linked as:
Summary
While financial engineering has been tarnished in the current credit crunch, market participants say collateralized debt obligations (CDOs) and other forms of securitization have their place in a modern financial system and will come back strong once the crisis is over. The US subprime meltdown is likely to produce unprecedented levels of events of default and asset liquidation relating to CDOs and structured investment vehicles, particularly for portfolios with high concentrations of subprime mortgage-related securities. The subprime crisis was exacerbated by over-reliance on modeling and silo structures that prevented aggregation of risk across companies, according to a report by Data-monitor that was written by Shaw-Williams and was issued on January 31. The ongoing crisis highlights the need for an enterprise-wide approach to risk management, the report says. The modeling of exposure to CDOs failed to address the highly leveraged nature of many funds, leaving many exposed to any downgrades, which could lead to a further sell-off of assets and contribute to a downward price spiral, Shaw-Williams says.
See the full content of this document
Extract
Corporate Financing Focus: Looking Across the Abyss, Cdos Will Come Back in Simpler Form, Some Market Participants Say
While financial engineering has been tarnished in the current credit crunch, market participants say collateralized debt obligations (CDOs) and other forms of securitization have their place in a modern financial system and will come back strong once the crisis is over.
"Securkization is an absolutely vital structuring technique," says Greg Cioffi, partner in New York law firm Seward & Kissel's corporate finance group. Cioffi has significant experience with a broad range of structu...See the full content of this document
Sponsored links
