Where did the risk originate?

Escrito el 22 mayo 2007 por Juan Toro en Financial Markets

Fingers are being pointed everywhere for reckless lending. It is not just the housing market that has borrowed too much and in too easy conditions. This leverage trend has extended to many other sectors. This phenomenon has led some institutions to get worried about the problem. The BIS (Bank for International Setlement) is warning banks of careless lending to Hegde Funds . The OECD is claiming that loose monetary policy is responsible for the frenetic private equity activity. And last, the Financial Stability forum is acknowledging the existence of new risks in HF’s activity (see link below for the report update).

The curious thing is that fingers are been pointed now also to lenders (banks and institutions) and not just to borrowers (private equity firms and hedge funds). And probably, this criticism is right. The LTCM debacle was as much a failure of the fund managers as it was a failure of the prime brokers/banks that allowed the huge leverage that LTCM was taking.

Everyone is making sure that if some big credit melt happens, they can claim they did their part advising on the risks.

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