While You Were Working - August 28 - SmartBrief

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While You Were Working – August 28

The cost of Harvey, a tougher Fed, and the correlation between CDOs and career risk

2 min read

Finance

The cost of Harvey could be massive (James Nielsen/AFP/Getty Images)

Estimates for Hurricane Harvey started flooding in …

Initial estimates for the total cost of Hurricane Harvey are coming in at about $30 billion. However, one analysts thinks the final number might be closer to $100 billion.

… And some banks are already doing the right thing

In times of natural disaster, it is good to see banks being proactive about helping their customers. A whole host of institutions are waiving things like late fees for customers affected by Harvey. Kudos to those banks.

The Federal Reserve got some good pub for being tough

David Zaring over at the Wharton School think the Federal Reserve deserves praise for the toughness it is displaying by dishing out fines to banks committing all manner of sins. Zaring is being kind. After all, no bank execs are facing jail time for crisis-era misdeeds and none of the banks tagged with fines by the Fed are in any danger of going out of business. They might not be happy to pay the Fed the cost of doing business, but they are still profitable enough to pay it.

CDOs and “career risk”

I am not someone who thinks that any particular derivative should be banned. A bet is a bet; and if a fool wants to make a stupid bet, that is their prerogative.

However, collateralized debt obligations enjoyed top-billing when it came to causes for contagion during the financial crisis. Ergo, one would think CDOs might have a bit of a “branding” problem. But apparently not.

But it does look like at least one market participant agrees with me about the branding issues surrounding CDOs.

“If you’re the person responsible for buying the synthetic CDO that suddenly goes wrong, your career risk is bigger than if you’d bought a plain vanilla bond that goes wrong. It has a bad name,” said Ulf Erlandsson, a portfolio manager at start-up hedge fund Glacier Impact, who until recently oversaw credit for one of Sweden’s public pension funds.

That phrase – “career risk” – makes me chuckle. Think about how bold you would have to be to dive into an investment that might not just cost you and/or a client a ton of money, and might not just cost you your current job, but could cost you your entire career! Very bold, indeed.