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.
Robert F. EngleWell if you've got information about a company, or you believe that a company is undervalued, you can go out and buy their stock and you can make some profit on it.
Robert F. EngleSo 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.
Robert F. EngleI 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.
Robert F. EngleA 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.
Robert F. Engle