by Jules Evans | Feb 12, 2008 | Economics and development, Global system, Influence and networks
As the unshakeable solidity of the world’s financial markets turns out to be a castle in the sky, we all wish someone had warned us about collateralized debt obligations (CDOs) and the dangers of securitization, before it was too late.
But wait…I did! When I was a young cub reporter covering the securitization market back in 2001, I wrote an article for Euromoney called The Hidden Risks of Synthetic CLOs. CLOs are collateralized loan obligations, whereby banks package loans such as mortgages into off-balance-sheet investment vehicles, then sell them on investors.
I warned, “if there is a stain on the ABS market’s halo, it is CLOs and synthetic CLOs…The danger is that the loans or the risk sold off will come back to haunt the banks. Says Charles Peabody, a banking analyst at Mitchell Securities in New York: “CLOs are just financial engineering that hide most of the risk that banks are taking. I call them CLOWNs – collateralized loan obligations worth nothing. US and European banks’ increased use of CLOs represent a definite danger to banks. They’re a risk that the system cannot afford to take now.”
I also said: “Another, wider, danger for investors, and indeed for the banking system at large, is the opacity and complexity of synthetic CLOs. Says Drayson: “Many investors don’t understand synthetic CLOs.” Nor do many CEOs or CFOs.”
I remember the article well, because after it was published, I was rung up by the head of CDOs and CLOs at a bank – he was American, I think the bank was Morgan Stanley, and I was subjected to a sort of verbal leg-breaking by him and his colleague, who told me I didn’t know what I was talking about and was basically a disgrace to journalism. It was bruising.
Well, I don’t want to brag, but ha! Now many commentators are saying that CLOs are a serious mess, and are going to cost banks billions of dollars.
Looks like I was right and the overpaid banker was wrong! Collateralize that, buster.
by Charlie Edwards | Feb 12, 2008 | Influence and networks
Mary Dejevsky is beside herself in today’s Independent. Apparently the UK is no longer punching above its weight on the international stage.
Cast an eye over the holders of key international jobs, hang around at an international conference or two, and you could be forgiven for wondering where the Brits have gone. There was a time, long after the sun had set on the Empire, when the British still strutted the world stage. If they had the grace not actually to monopolise the very topmost jobs, they commanded respect as the policy-makers, drafters and negotiators who helped the world go round. They could be apposite and witty at the same time, and they knew how to get things done. Even a decade ago, Britons seemed to pop up all over the place in influential positions, keeping the country truly on the global map.
It is hard to date the beginning, or the end, of our retreat, but the return of Mark Malloch Brown, then Deputy Secretary General, from the United Nations to join Gordon Brown’s “government of all the talents” might be seen as a moment when we pulled up one of the last drawbridges linking us to the outside world. Similarly, the retirement of Sir John, now Lord, Kerr, after serving as Secretary General of the Convention drafting the European Constitutional Treaty.
So what prompted Mary to be so downcast about the UK’s role on the global stage?
The absence of senior Britons from international gatherings is becoming conspicuous. At the Munich security conference last weekend – perhaps Europe’s premier defence gathering – it was noted that this was the first time in 40-plus years that no Briton spoke from the platform. What was that about our diplomacy “punching above its weight”?
Why is this?
- There may be a host of reasons why Britons are putting themselves about less abroad. The proliferation of international talking-shops is surely one. A-list dignitaries can be choosy. (or indecisive)
- A more prosaic explanation could be social change. In today’s British Cabinet an unusual number of senior ministers have young children. (changing nappies in the hindu kush is a nightmare I’m told)
Insightful.
She also worries we don’t have enough people in the upper echelons of international organisations – which are being snapped up by… you’ve guessed it… the French!
The European Central Bank, the European Bank for Reconstruction and Development, the World Trade Organisation and the International Monetary Fund are all headed by members of the French technocratic elite. Britons are nowhere to be found at the apex of these organisations, which have at least as much clout as the more hidebound diplomatic and security groupings.
But in a world with English as the universal means of communication, a world linked by the internet and mobile phones, does the nationality of international civil servants and conference speakers really matter?
It does matter. They see competition between countries to attract the best entrepreneurs, the best managers and the highest earners. They see competition to notch up the best educational standards and give the next generation an advantage in the global market. National placings in all manner of league tables are keenly studied.
This is why it matters that no Briton is even deputy head of a major international institution and no Briton speaks from the platform at an international forum. It shows an aloofness, and perhaps a diffidence, presaging a future in which we British will punch well below her weight.
Tea anyone?
