We have a market-risk lens looking at those products, not the credit-risk lens looking at those products. When it in fact was a credit event.The bank, we learn, was “caught off guard”.
Here is what John Thain, the CEO of Merrill Lynch, had to say about the losses Merrill suffered in CDOs, courtesy Financial Times:
There were a number of failures. First on the risk management front. This was really focused on the management of the risks of the trading desks because actually the credit risk management, particularly on the leveraged lending side, was very good but on the market side it wasn’t.According to the Citi CFO, the problem was the lack of attention to credit risk.
According to the Merrill CEO, the problem was lack of attention to market risk.
Both men are talking about the multi-billion dollar losses their institutions suffered trading the same product, using the same strategy.
Both are officers responsible for setting things straight – first in their respective institutions and then in the international markets where they are among the key players.
After this easy setup, created by putting their words next to one another, flouting these men would be in bad taste – an intellectual equivalent of dwarf tossing.
More to the point, the subject of finance is not people. It is capital in circulation. I will return with a series of postings on the current crisis. These men need help.