With all the trouble going on "on the Street" and in the economy a lot of folks are starting to give structured products a black eye. From currently working in sales in the structured space (mainly cash and synthetic CDOs) I have seen this market dry up and it seems like no one is structuring deals any more. With all the toxic stuff out there it's hard to imagine structure coming back any time soon. I'm curious to learn the opinion of members on how they see the future of the structured finance industry.

No more credit derivatives, no transfer credit risk until people can fully understand what the underying they take on risk is and mysterious correlation.

No more credit derivatives? I think that might be a little extreme.

Yep, and AAA official rating might need to be translated to something more meaninful for the people analizing probabilities of default.

QuoteOriginally posted by: bilbo1408No more credit derivatives? I think that might be a little extreme.===================== A very senior quant of one of the biggest firms told me Friday he has 25 quants working for him and could use 75 more for all the work that needs to be done---he would be happy if he can get 25 more given the current economy. He expects good quants who understand finance is more than math and physics to still be in demand, esp. in risk areas. These will be mostly those who take a serious look at the financial and economic issue and incorporate that in their work. As is usually the case it is the traders and marketers, not these people, who come up with the toxic products. He agreed that what I called FE [MBAs, traders and marketers pushing exotic or hard to explain/understand instruments] will probably have a hard time and have to stay under the radar for sometime. Of course the success of the 'FEs' will determine, except for risk management, how many quants are needed.

When banks started trying to foreclose on homes, many had problems because with all the transfers of mortgage owner [i.e. from one bank to another] they did not have the legal papers and this greatly delayed their foreclosure---and perhaps sale, re-negoitation, etc.. One reason proposed for the [use your favorite term] with $700 billion, it sounds like even buying the securities from banks [if they will even agree to terms] could take month. If as many citizens would want [whether you think a good/best idea], the government took over the mortgages directly, could they be they be disentangled fast enough ? I.e. could the banks and banks they sold the mortgage to get the 'paper work' figured out and the 'legal' owner of the mortgage sell it to the government and then the government deal with the home 'owner' fast enough to make an economic difference---how many months to disentangle and how many more to deal with homeowner ? I would imagine disentangling the securities sold by banks and Fredie/Fannie would would take multiples of those time frames. NYT editorial thought they could [how long?] but newspapers can say what they want without facts/knowledge. Any experts 'know' what is and how long, would be feasible ?

In Singapore, a lot of (retail) investors are up in arms already against the structurers (Lehman) and distributors (various banks) for fooling them into investing into structured products.

In the meantime, the credit market is slow, frozen if you can accept the reality. However, when we stablize the situation, I believe they will come back.How much will depend on the economy, and the leadership of the governments at the time.QuoteNo more credit derivatives, no transfer credit risk until people can fully understand what the underying they take on risk is and mysterious correlation. Well, it's not possible. When did we all say we understand everything? When the economy needs the cash flow to support its expansion, credit derivatives will be there,some of the products will appear with different name, but the underlying principle would be more or less the same.

My view is that some form of securitisation is actually going to be the way out of this mess...The logic goes something like this:There is no firm so big or famous that it compels trust in its debt.Thus I perceive that borrowing against proven assets with secure ring fencing may be the only way that some entities will be able to borrow.Even the most toxic of debt has a core that even in this market is going to be repaid short of a nuclear war. For instance many of the mortgages that allowed people to choose how much they repaid, are just about to be reset to "standard" rates.These were sold to people of questionable credit history, who have already chosen to under-pay. Maybe there's something worse, but I don't know about it.The consensus is that 60% of that is never coming back, but of course that leaves 40% that is probably OK, even under pessimistic assumptions.There is a 10% tranche there that is as risk free as anything.Of course I don't believe for one second that this golden 10% is going to get many people fishing in the toxic bucket.But it is necessarily the case that there are many large scale cash flows that have AAA tranches.The problem is that "AAA" is not trusted any more.But the opportunity is exactly that.If someone can find a way of not only engineering low risk cores, but proving them to be true, he will be very very very rich.If you know the answer to this, oh super-intelligent one, and are reading this, pray remember your humble servant when you have all the money in the world.

QuoteOriginally posted by: DominicConnorThe problem is that "AAA" is not trusted any more.I don't know what kind of idiots can give grade AAA to securities, which have embedded market risk and in some degree credit risk as well. It was a total scam from the beginning IMHO.

There are a lot of work or turmoil ahead. Before we get to address the roles of the credit agencies, we need to deal with the overall confidence problem without the 700B check!

People like to run from one side to other opposite sideand run back again. That's why I believe it willnot be an end, of course , the recover progress shouldbe slow under strong regulation.Securitization is a good tool to reduce the risk. Now everyoneask: Please prove it! But unfortunately, it can not prove in the current situation. That's why now we know therehas a crisis and recession.When the housing recession cycle is ended in next 5-6 years and the house price increase again, I guess most of people will forget what they think today.