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ballou
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Posts: 1
Joined: January 20th, 2007, 11:54 am

Credit Derivatives & Subprime Crisis

August 8th, 2007, 11:34 pm

Hi all,Did you think that the Subprime Crisis can have straight serious consequences on the recruitment in Credit derivatives desks (Trading Correl / Struct / Credit &Cdos Management)...
 
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quantmeh
Posts: 5974
Joined: April 6th, 2007, 1:39 pm

Credit Derivatives & Subprime Crisis

August 9th, 2007, 1:54 am

do u mean liquidity crisis? if there's no trade, no need in traders
 
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tournesol
Posts: 88
Joined: September 10th, 2003, 1:25 pm

Credit Derivatives & Subprime Crisis

August 10th, 2007, 6:25 am

Credit deriavtives trader who did enjoy the good years of Market to model are now face to the reality. Anything is not worth more or less than the price people are willing to pay for it. Your model says it is worth 10, but if there are no buyers, the price is actually 0. Welcome to the reality.
 
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Zub
Posts: 115
Joined: December 13th, 2005, 1:04 pm

Credit Derivatives & Subprime Crisis

August 10th, 2007, 8:17 am

I guess many people are losing, but there are also winners out there.http://www.bloomberg.com/apps/news?pid= ... =homeStill not very clear to me the difference between a crisis and a buy opportunity
 
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Aaron
Posts: 6433
Joined: July 23rd, 2001, 3:46 pm

Credit Derivatives & Subprime Crisis

August 10th, 2007, 12:26 pm

QuoteOriginally posted by: ballouHi all,Did you think that the Subprime Crisis can have straight serious consequences on the recruitment in Credit derivatives desks (Trading Correl / Struct / Credit &Cdos Management)...You're not thinking like a finance guy. When there are dramatic events don't ask hopefully if things will remain the same, figure out where the new opportunities are and get there first.The medium-term effect will be that standards for highly-rated tranches of structured deals (all kinds of structures, not just subprime mortgages) will go up and complexity will be out of fashion. That will remove some of the rating-agency-arbitrage business (but that's as persistent as the villian of a successful horror movie franchise, so don't think it's dead just because it's buried under a mountain of rubble with a stake through its heart and six silver bullets in its head). The guys who had no interest in finance but got good at playing with the old-style structures will be out on the street, wondering why no one is interested in their resumes. The guys who saw a market opportunity and grabbed it, will move on to something else.You should be thinking about what will replace these deals. People still want to take low-rated collateral and split it between optimists who want high returns if things work out and pessimists who will take very low rates if they're sure the deal will deliver as promised.
 
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McKinnell
Posts: 41
Joined: December 27th, 2006, 11:59 am

Credit Derivatives & Subprime Crisis

August 10th, 2007, 1:16 pm

I agree ...
 
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McKinnell
Posts: 41
Joined: December 27th, 2006, 11:59 am

Credit Derivatives & Subprime Crisis

August 10th, 2007, 1:18 pm

Tell that to people who are holding CDO's which have now been priced by supply and demand as they should have been in the first place (or not invested in)Those clients will not thank a "new opportunities" speach.
 
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quantmeh
Posts: 5974
Joined: April 6th, 2007, 1:39 pm

Credit Derivatives & Subprime Crisis

August 10th, 2007, 1:23 pm

i dont see a big issue here. i think 50% of subprime disaster was due to operational risk. those guys who actually lend the loans to people were not checking their backgrounds properly, there's a lot of fraud going and so on. in other words, i think that due to inadequate control on lending agents a lot of people got mortgages which they shouldht have gotten even with lax credit standards. once this is fixed, or lending standards tighten, the subprime market will be ok
 
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McKinnell
Posts: 41
Joined: December 27th, 2006, 11:59 am

Credit Derivatives & Subprime Crisis

August 10th, 2007, 1:28 pm

we all bow to the market. It tells us all the information. The prices have tanked and its contagious. The only question is what is going to happen going forward: Get worse or get better?Personally, especially for CDOs which have been priced by scientists who forgot supply and demand, I can see the crisis spreading further: go long vol with puts and var swaps or has the vol peaked?
 
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mr97
Posts: 54
Joined: July 14th, 2002, 3:00 am

Credit Derivatives & Subprime Crisis

August 12th, 2007, 3:05 pm

QuoteOriginally posted by: McKinnellwe all bow to the market. It tells us all the information. The prices have tanked and its contagious. The only question is what is going to happen going forward: Get worse or get better?Personally, especially for CDOs which have been priced by scientists who forgot supply and demand, I can see the crisis spreading further: go long vol with puts and var swaps or has the vol peaked?whose offering var swaps now - even vanilla index cds vol is hard to buy in size right now, and by that i mean the fgood stuff, main vol, not xo
 
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StructCred
Posts: 301
Joined: February 1st, 2007, 1:59 pm

Credit Derivatives & Subprime Crisis

August 12th, 2007, 5:16 pm

mr97: to be fair, XO vol has always been the more liquid point in the market, but vol is indeed expensive and hard to come by. I would agree that being long gamma is a good position to be in right now, but with sep main vol bid around 150 and offered somewhere in the stratosphere, I wouldn't be too eager to buy.
 
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Yura
Posts: 585
Joined: February 11th, 2006, 11:28 pm

Credit Derivatives & Subprime Crisis

August 12th, 2007, 6:02 pm

QuoteOriginally posted by: jawabeani dont see a big issue here. i think 50% of subprime disaster was due to operational risk. those guys who actually lend the loans to people were not checking their backgrounds properly, there's a lot of fraud going and so on. in other words, i think that due to inadequate control on lending agents a lot of people got mortgages which they shouldht have gotten even with lax credit standards. once this is fixed, or lending standards tighten, the subprime market will be okIs fraud really the problem here? I don't think it is. Mortgage lenders were lending money to whoever because the housing market was on the rise. They used the rising housing prices as a hedge against the poor credits of the borrowers, i.e. in the case a borrower defaults they will sell the house and get their money back. The problems began when the housing market started declining. Am I missing something?
 
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wilbat
Posts: 7
Joined: July 14th, 2002, 3:00 am

Credit Derivatives & Subprime Crisis

August 12th, 2007, 6:23 pm

QuoteOriginally posted by: YuraIs fraud really the problem here? I don't think it is. Mortgage lenders were lending money to whoever because the housing market was on the rise. They used the rising housing prices as a hedge against the poor credits of the borrowers, i.e. in the case a borrower defaults they will sell the house and get their money back. The problems began when the housing market started declining. Am I missing something?I think you are right. In an increasing market, there is, of course, a natural hedge.But, I also guess some Mortgage lenders care too little about credit scoring for loans where LTV (Loan To Value) is (assumed) low. If you want to borrow, say, 70% of the value of the house, then go ahead... The problem is, when the estimated value of the house is wrong, and you borrow close to or above the actual value...--Allan
 
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StructCred
Posts: 301
Joined: February 1st, 2007, 1:59 pm

Credit Derivatives & Subprime Crisis

August 12th, 2007, 6:25 pm

Yura: I think the issue here is with lenders acting as agents rather than principals. Historically, mortgage banks have acted as principals in subprime loans. With proliferation of subprime securitization, their role changed to that of an agent - i.e. issue a loan and sell it off. As a result, the incentives for credit analysis have disappeared and the quality of collateral has gone downhill. The economic upshot of this is that historical analysis of subprime default rates isn't worth a dime for recent vintage (yet, it was used to rate and price the deals). As far as the fraud claim goes, I'll leave that one to lawyers to decide.
 
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TraderJoe
Posts: 11048
Joined: February 1st, 2005, 11:21 pm

Credit Derivatives & Subprime Crisis

August 12th, 2007, 9:50 pm

I'd tend to agree with this guy:Quote"There will be a 're-pricing' of risk on a global scale that will mean more credit funds being carried out the door feet first,'' Kyle Bass, managing partner of Hayman, 37, wrote in his letter. He declined to comment on the firm's performance.
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