tag:blogger.com,1999:blog-16752530.post1094951070088535436..comments2023-07-14T10:05:24.644-04:00Comments on The Reasoned Sceptic: On The M-LEC Master SIV Fund: Part Two- Commercial Bank CEOsC Neulhttp://www.blogger.com/profile/13359260012492887159noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-16752530.post-16838883289116883102007-10-23T09:28:00.000-04:002007-10-23T09:28:00.000-04:00anonymous-You are welcome.On the matter of the ban...anonymous-<BR/><BR/>You are welcome.<BR/><BR/>On the matter of the banks' technical exposure, I cannot claim to be an expert.<BR/><BR/>However, logic helps.<BR/><BR/>If, for example, Citi <I>has</I> exposure, due to recourse provisions, then this amounts to a time-oriented delay of value recognition, in the form of a temporary bailout. But I have yet to read anything suggesting that the bank is exposed in this manner.<BR/><BR/>Rather, I think the risks include reputational, and, relatedly, the foreclosure of such management arrangements in the forseeable future.<BR/><BR/>The risks also probably, as I noted, extend to banks' feeling responsible for the operational integrity of the financial system.<BR/><BR/>This is actually ironic, because commercial paper destroyed the one-time lush business of short-term financing loans that banks used to have.<BR/><BR/>Nevertheless, banks are worried that their own debt instruments may find fewer buyers if commercial paper markets evaporate due to a default.<BR/><BR/>As to defunct investment banks, I distinguish between them and commercial banks in the manner in which they tended to crash.<BR/><BR/>It may seem nuanced to others, but, to me, Salomon, Kidder, and First Boston (Morgan Stanley never was in danger or crisis) all failed or needed help due to poor risk management of a more individual nature.<BR/><BR/>Kidder and Salomon were brought down essentially by one rogue trader in each case.<BR/><BR/>First Boston suffered from one deal, Ohio Matress. It wasn't so much an entire class of bad debt, as just one case of atypically holding bridging liabilities that went unsold and sank the firm.<BR/><BR/>With commmercial banks, you tend to have one large lending area after another pursue too much risk in the quest for growth. That's why about every 3-5 years, commercial banks suffer some serious losses due to pursuit of low-grade credits.<BR/><BR/>Investment bank failures have historically been for much different reasons.<BR/><BR/>-CNC Neulhttps://www.blogger.com/profile/13359260012492887159noreply@blogger.comtag:blogger.com,1999:blog-16752530.post-12980845446925278422007-10-22T23:51:00.000-04:002007-10-22T23:51:00.000-04:00Appreciate your taking the time to write on this m...Appreciate your taking the time to write on this matter. Here's one point that makes no sense to me:<BR/><BR/>Citi apparently has no legal exposure to any of its 'sponsored' SIVs. Citi is not obligated to redeem CP, take assets on its balance sheet, etc.<BR/><BR/>Is this all, then, about reputational risk?<BR/><BR/>I wouldn't be so bold about the investment banks either. Key names such as Salomon, Kidder, First Boston, Morgan Stanley all faced major crisis and survive due to megers with other institutions.Anonymousnoreply@blogger.com