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Quote by Robert F. Engle

“The collateralized debt obligation, the CDO, is a structure which allows you to more or less continuously choose how much risk you want to take in a whole batch of securities. And the reason why they got us into so much trouble is that it's hard to figure out how much risk you really are taking.”

Quote by Robert F. Engle

Author

Robert F. Engle

Robert F. Engle is a renowned economist known for his contributions to time series analysis and financial economics. In the 1970s, he proposed the Autoregressive Conditional Heteroskedasticity (ARCH) model, which had a profound impact on the study of financial market volatility. more

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“I think what we need is better understanding of how to do risk analysis of a CDO, but that they still can perform a very valuable function because they can aggregate these risks and pass them around so that mortgages or other kinds of loans can be packaged and sold to investors all over the world, who in most times, would justify a small amount of each one.”

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“Credit default swap gives you something to do. You can buy some credit default swaps from them to protect yourself against the bankruptcy of people who owe you money.”

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“If you pay attention to where your exposures are, you might tend up buying credit default swaps against a variety of people that you - companies that you deal with.”

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“I don't think the idea of requiring these to be only sold to people who have already own the bonds, in other words, this naked position that the Germans have recently put into their financial regulation and has been discussed here. I don't think that makes any sense.”

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“So what is the role that credit default swaps can play in an economy? Well my feeling is that if these things actually will now be traded on either exchanges or some kind of central clearing, they are going to be a very good measure of the credit worthiness of different companies.”

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“I think the credit default swaps can take the place of the rating agencies who really have missed the ball in this procedure and are quite conflicted by the way the ratings are paid for. So, I would like to see credit default swaps become an evermore important way of understanding credit risk in the economy.”

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“When large companies take on risk, then they impose risks on the rest of the system. And these are systemic risks and these systemic risks we never used to think were really that important, but as soon as we recognize how the financial sector - the risks the financial sector takes on can impact the entire global economy, we realize that those risks needed to be controlled for the social good.”

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“I think we're fooling ourselves if we think that regulators are going to be able to outsmart the bankers. So, the task of designing regulatory reform is trying to make more or less foolproof regulation and that's one of the advantages of the systemic category.”

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“A lot of ambitious code has been written into the law for those and we will have to see if it actually works, if we have another example of a big financial institution going bankrupt.”

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“I think global coordination is tremendously important. I hope we can see this happening through the G20 and through coordination of regulatory regimes around the world. I guess those are the main features of this bill that are important.”

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