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Wall
Street's role in Greek crisis should be no surprise
Washington Post– March
10, 2010
By Allan Sloan
How much of this stuff do the Street
people own? Where is it? What kind of
securities has it been pushed into? No
one knows. The one thing you can bet
on, though, is that unraveling it all
is going to be horribly complicated.
Why? Because for Wall Street, complexity
equals profitability.
[JT
Note: DTCC doesn’t capture all trades, and the already
flawed “ISDA standard” documentation isn’t
a requirement.]
It turns out you don't
have to own the underlying debt to buy a credit default swap.
In
the case of Greece, a higher price on the country's default swaps
raises price pressure on Greek bonds, which in turn makes
it harder to raise new money -- increasing the likelihood that
Greece will default. "When people pile on and take speculative
positions [rather than just trying to hedge their exposures],
you have the potential to destabilize a country or a company
that's already in trouble," says Janet Tavakoli of Tavakoli
Structured Finance. Indeed.
The transatlantic
outrage over the Greek situation may bring enough heat on Wall
Street to clean up its act, or at least seem
to clean up its act, when it comes to sovereign countries. I
don't know how that will play out. One thing I do know, though,
is that unless someone smacks the Street -- hard -- Greece won't
be the end of the story. And it won't be the last surprise.
End
of Excerpt
Janet
Tavakoli is the president of Tavakoli
Structured Finance, a Chicago-based firm
that provides consulting to financial institutions
and institutional investors. Ms. Tavakoli
has more than 20 years
of experience in senior investment banking
positions, trading, structuring and marketing
structured financial products. She
is a former adjunct professor of derivatives
at the University of Chicago's Graduate
School of Business. She is the author of: Credit
Derivatives & Synthetic
Structures (John
Wiley & Sons,
1998, 2001), Structured
Finance & Collateralized
Debt Obligations (John
Wiley & Sons, 2008).
Janet
Tavakoli's book on the global financial meltdown is Dear
Mr. Buffett: What An Investor
Learns 1,269 Miles From
Wall Street (Wiley 2009)
Clients
of Tavakoli Structured Finance
have the benefit of proprietary consultation, which is
not available in any other paid or public forum. Clients
also commission proprietary research and analysis.
TSF
makes some information available to the general public. Please
click here for other articles.
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