"Liquidity, however, is not about physical cash; it is mainly a psychological state. Subprime problems have consumed only trivial amounts of global cash but already have burst bubbles by shocking lenders."
"The present $200 billion of delinquencies will grow to $400 billion or $500 billion next year because $570 billion more low, teaser-rate mortgages will reset to market and consume more than 50% of the borrowers' income. Therefore most of the loans will be foreclosed or restructured. Probably 1.5 million to two million families will lose their homes. Meanwhile, few lenders will put mortgages on the foreclosed houses, so the prices will plummet. Despite these tragedies, total losses will probably be less than 1% of household wealth and only 2% to 3% of one year's GDP, so this is not Armageddon. However, even prime jumbo mortgages will be more expensive and more difficult to obtain.
Similar excesses occurred in corporate debt markets. Leveraged buyouts were financed with few or no restrictive covenants and with some borrowers able to "toggle," or issue more bonds to pay interest in lieu of cash. The debt-to-cash-flow ratio hit record highs, and more than 60% of junk bonds issued are rated B or lower. Only 13% of high-yield issuance proceeds was for capital expenditures for expansion--87% went for sponsor dividends, stock buybacks, LBOs, or refinancings, none of which inherently advance credit worthiness. And this exotic lending paid only 2.5% to 3.0% more interest than Treasury bonds' 5.5%. Therefore investors received only 8% or 8.5% interest on bonds that had a 25% probability of defaulting, the same ignoring of risk as in subprime.
The cause was also the same. Wall Street made $100 of these credits into tranches of securities that sold for $102 or more. Again we had securitization pseudo-alchemy creating fool's gold. The weakest 5% or so of a $2 trillion universe of leveraged loans and high-yield bonds will crater. This is only 1% of GDP, but lending standards will tighten for a while, just as they did after the telecom bubble burst."
John Mack
Chairman and CEO, Morgan Stanley
"Is this a crisis? Anytime you have this kind of market dislocation, it is. It's not so much a credit crisis as a liquidity crisis, largely because of the subprime market meltdown. As a result, the quant funds de-leveraged. We processed 8.25 million tickets in one day. Just for perspective, we thought we had set a record two weeks before, when we processed 3.6 million tickets.
I was around in 1987, and that crisis was more disruptive and much more alarming than this is. So was the 1998 foreign-debt crisis. It's not all bad news now. There's still liquidity in the markets. There's plenty of investor money in China, Russia, the Middle East, as well as the U.S. The rest of the world has developed to the point that, if the U.S. goes into a recession, I don't think we'll have a global recession. I don't think a recession is going to happen, but it's what our central banks have to worry about.
It's too early to tell how this will shake out. The markets will eventually normalize, but things have changed. Investment banks and commercial banks will be much more conservative with their leveraged loans (for private equity buyouts). They'll demand full flexibility. There will be much stronger covenants structured into deals so that if things go wrong, the deals can be repriced. When buyers start paying a higher price for liquidity, clearly their returns have to go down. Six months ago I was saying that we'll eventually see a $100 billion private equity deal. We got halfway there. (BCE, the Canadian phone giant, is the biggest pending buyout to date, at $48.5 billion.) A deal that size is on the back burner now. The Street is not going to structure these giant transactions as they have in the past. "
"Is this a crisis? Anytime you have this kind of market dislocation, it is. It's not so much a credit crisis as a liquidity crisis, largely because of the subprime market meltdown. As a result, the quant funds de-leveraged. We processed 8.25 million tickets in one day. Just for perspective, we thought we had set a record two weeks before, when we processed 3.6 million tickets.
I was around in 1987, and that crisis was more disruptive and much more alarming than this is. So was the 1998 foreign-debt crisis. It's not all bad news now. There's still liquidity in the markets. There's plenty of investor money in China, Russia, the Middle East, as well as the U.S. The rest of the world has developed to the point that, if the U.S. goes into a recession, I don't think we'll have a global recession. I don't think a recession is going to happen, but it's what our central banks have to worry about.
It's too early to tell how this will shake out. The markets will eventually normalize, but things have changed. Investment banks and commercial banks will be much more conservative with their leveraged loans (for private equity buyouts). They'll demand full flexibility. There will be much stronger covenants structured into deals so that if things go wrong, the deals can be repriced. When buyers start paying a higher price for liquidity, clearly their returns have to go down. Six months ago I was saying that we'll eventually see a $100 billion private equity deal. We got halfway there. (BCE, the Canadian phone giant, is the biggest pending buyout to date, at $48.5 billion.) A deal that size is on the back burner now. The Street is not going to structure these giant transactions as they have in the past. "
Bill Miller
Chairman and chief investment officer, Legg Mason Capital Management
"These sorts of things are what's known to the academics as "endogenous to the system"--that is to say, they're normal. They happen usually every three to five years. So we had a freezing up of the market for corporate credit in the summer of '02. We had an equity bubble just before that. In '98 we had Long-Term Capital. In '94 we had a mortgage collapse like we're having right now. In 1990 we had an S&L collapse. In '87 we had a stock market collapse. These things flow through the system, and they're part of the system. I saw one quant quoted over the weekend saying, "Stuff that's not supposed to happen once in 10,000 years happened three days in a row in August." Well, I would think that you would learn in Quant 101 that the market is not what's known as normally distributed. I'm not sure where he was when all these things happened every three or five years. I think these quant models are structurally flawed and tend to exacerbate this stuff.
But these events represent opportunities. When markets get locked up like this, it's virtually always the case that you'll have opportunities if you have liquidity. Instead of worrying how bad it's going to get, I think people should be thinking about where the opportunities might be.
The NYSE financial index is probably the best barometer of what's to come. The financials tend to be a very good indicator of where the market's going. They tend to lead the market because they're the lubrication for the economy. So I think the financial index will tell you if this thing is over, and so far it's telling you it's not over. It's still falling. But just as financials lead on the downside, they will lead on the upside."
"These sorts of things are what's known to the academics as "endogenous to the system"--that is to say, they're normal. They happen usually every three to five years. So we had a freezing up of the market for corporate credit in the summer of '02. We had an equity bubble just before that. In '98 we had Long-Term Capital. In '94 we had a mortgage collapse like we're having right now. In 1990 we had an S&L collapse. In '87 we had a stock market collapse. These things flow through the system, and they're part of the system. I saw one quant quoted over the weekend saying, "Stuff that's not supposed to happen once in 10,000 years happened three days in a row in August." Well, I would think that you would learn in Quant 101 that the market is not what's known as normally distributed. I'm not sure where he was when all these things happened every three or five years. I think these quant models are structurally flawed and tend to exacerbate this stuff.
But these events represent opportunities. When markets get locked up like this, it's virtually always the case that you'll have opportunities if you have liquidity. Instead of worrying how bad it's going to get, I think people should be thinking about where the opportunities might be.
The NYSE financial index is probably the best barometer of what's to come. The financials tend to be a very good indicator of where the market's going. They tend to lead the market because they're the lubrication for the economy. So I think the financial index will tell you if this thing is over, and so far it's telling you it's not over. It's still falling. But just as financials lead on the downside, they will lead on the upside."
Stephen S. Roach
Chairman, Morgan Stanley Asia
"When the bubble burst in early 2000, the optimists said not to worry. After all, Internet stocks accounted for only about 6% of total U.S. equity-market capitalization at the end of 1999. Unfortunately, the broad S&P 500 index tumbled some 49% over the ensuing 2 1/2 years, and an overextended corporate America led the U.S. and global economy into recession.
Similarly, today's optimists are preaching the same gospel: Why worry, they say, if subprime is only about 10% of total U.S. securitized mortgage debt? Yet the unwinding of the far broader credit cycle gives good reason for concern--especially for overextended American consumers and a U.S.-centric global economy. Central banks have now been forced into making emergency liquidity injections, leaving little doubt of the mounting risks of another financial crisis. The jury is out on whether these efforts will succeed in stemming the rout in still overvalued credit markets. Is this any way to run a modern-day world economy? The answer is an unequivocal "no."
It is high time for monetary authorities to adopt new procedures--namely, taking the state of asset markets into explicit consideration when framing policy options. As the increasing prevalence of bubbles indicates, a failure to recognize the interplay between the state of asset markets and the real economy is an egregious policy error."
"The current financial crisis is a wake-up call for modern-day central banking. The world can't afford to lurch from one bubble to another. The cost of neglect is an ever-mounting systemic risk that could pose a grave threat to an increasingly integrated global economy. It could also spur the imprudent intervention of politicians, undermining the all-important political independence of central banks. The art and science of central banking is in desperate need of a major overhaul--before it's too late."
"When the bubble burst in early 2000, the optimists said not to worry. After all, Internet stocks accounted for only about 6% of total U.S. equity-market capitalization at the end of 1999. Unfortunately, the broad S&P 500 index tumbled some 49% over the ensuing 2 1/2 years, and an overextended corporate America led the U.S. and global economy into recession.
Similarly, today's optimists are preaching the same gospel: Why worry, they say, if subprime is only about 10% of total U.S. securitized mortgage debt? Yet the unwinding of the far broader credit cycle gives good reason for concern--especially for overextended American consumers and a U.S.-centric global economy. Central banks have now been forced into making emergency liquidity injections, leaving little doubt of the mounting risks of another financial crisis. The jury is out on whether these efforts will succeed in stemming the rout in still overvalued credit markets. Is this any way to run a modern-day world economy? The answer is an unequivocal "no."
It is high time for monetary authorities to adopt new procedures--namely, taking the state of asset markets into explicit consideration when framing policy options. As the increasing prevalence of bubbles indicates, a failure to recognize the interplay between the state of asset markets and the real economy is an egregious policy error."
"The current financial crisis is a wake-up call for modern-day central banking. The world can't afford to lurch from one bubble to another. The cost of neglect is an ever-mounting systemic risk that could pose a grave threat to an increasingly integrated global economy. It could also spur the imprudent intervention of politicians, undermining the all-important political independence of central banks. The art and science of central banking is in desperate need of a major overhaul--before it's too late."
Robert Shiller
Stanley B. Resor professor of economics, Yale University
"We have been in a spectacular boom in both stock and housing, and there's a psychology associated with that. "
" So far, I don't see any major change in investor psychology."
"We have been in a spectacular boom in both stock and housing, and there's a psychology associated with that. "
" So far, I don't see any major change in investor psychology."
Amy Brinkley
Chief risk officer, Bank of America
"The very substantial changes in the financial markets over the past five years have presented new challenges. We have new players: foreign investors, hedge funds, and private equity firms. And we have new products--more complex products than in the past. The changes do distribute risk more broadly, but they've contributed to the uncertainty. Getting a handle on where the risk is isn't as easy as it used to be when banks made loans that defaulted when they were bad. These more complex products are less transparent, so it's difficult to determine the value. And the hedge funds are less transparent. The uncertainty creates a higher level of risk aversion. That, in turn, creates liquidity risk. People want to sit on the sidelines until they think they have it all figured out.
Where does it go from here? The longer there's risk aversion, the greater the impact on the markets. The oversupply of leveraged loans will take a few months to go through the system. The subprime issues will continue to be problematic through 2008. But these are healthy corrections for the long term. We don't see broad signs of weakness in the economy, and that's what matters most. Global economic growth is expected to remain strong. The U.S. economy continues to be sound. One of the most important indicators is low unemployment, at 4.6%. We're seeing steady gains in personal income. There's a continued acceleration in exports. And corporate balance sheets are strong. "
"The very substantial changes in the financial markets over the past five years have presented new challenges. We have new players: foreign investors, hedge funds, and private equity firms. And we have new products--more complex products than in the past. The changes do distribute risk more broadly, but they've contributed to the uncertainty. Getting a handle on where the risk is isn't as easy as it used to be when banks made loans that defaulted when they were bad. These more complex products are less transparent, so it's difficult to determine the value. And the hedge funds are less transparent. The uncertainty creates a higher level of risk aversion. That, in turn, creates liquidity risk. People want to sit on the sidelines until they think they have it all figured out.
Where does it go from here? The longer there's risk aversion, the greater the impact on the markets. The oversupply of leveraged loans will take a few months to go through the system. The subprime issues will continue to be problematic through 2008. But these are healthy corrections for the long term. We don't see broad signs of weakness in the economy, and that's what matters most. Global economic growth is expected to remain strong. The U.S. economy continues to be sound. One of the most important indicators is low unemployment, at 4.6%. We're seeing steady gains in personal income. There's a continued acceleration in exports. And corporate balance sheets are strong. "
不同意第二段，系统已经不是健康发展了。衍生工具就象癌细胞，无限制扩大。没救～～