hence the urge to set up ESBs to offload excess risk to savers one way or another. @cetier1 @lerzegov @jsblokland @dlacalle_IA
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Offload or spread risk?
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Offload. check my numbers (heck, mine. as if I was anything more than the Barnie Rubble of Investments)https://goo.gl/Vjcppz
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diversification would reduce the impact, but it would NOT change the mechanism: portfolio is worth 100, first risk is borne by the junior 30. Where do they think to stash that, I honestly don't know, apart that I would like the beneficial owners to be made WELL aware.
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It's the 70% good quality tranche the issue for me. Like the AAA CDOs back in 2007 which turn out to be just junk. That tier I capital back by gov bond with 0% weight is the trouble.
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oh, not as much. I am not into "risk management", but consider as an example Greek govt Private Sector Initiative when it tanked (...) bond nominal gets about a 50% haircut. Senior ESB's go from 100 to 80, in the worst case (single issuer). wake me up when there's a real prob.
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Having said that, it's not Greece, or Italy, that worries in that example. It's Cyprus. think about it.
End of conversation
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