Whoa... tell that to the folks who worked at Bear Sterns and Lehman during 2007/2008. This is precisely why all of the major banks needed a bail-out. The risk models all automatically assumed that these instruments would maintain their liquidity, but when that capital dries up, it turns into a game of musical chairs.
When your business model fundamentally relies upon a liquid market for short-term credit[1], you typically end up in bankruptcy court when/if the music stops (unless of course you threaten the entire financial system and get a government bail-out).
When the institutions you rely upon for credit lose faith that you can repay your debts, you're sunk. Mark to whatever, that only matters with long-term debt.
Whoa... tell that to the folks who worked at Bear Sterns and Lehman during 2007/2008.
Bear collapsed because they held huge long bets on housing with high duration. In contrast, companies like Goldman (mostly short term strategies) survived just fine.
Whoa... tell that to the folks who worked at Bear Sterns and Lehman during 2007/2008. This is precisely why all of the major banks needed a bail-out. The risk models all automatically assumed that these instruments would maintain their liquidity, but when that capital dries up, it turns into a game of musical chairs.
When your business model fundamentally relies upon a liquid market for short-term credit[1], you typically end up in bankruptcy court when/if the music stops (unless of course you threaten the entire financial system and get a government bail-out).
When the institutions you rely upon for credit lose faith that you can repay your debts, you're sunk. Mark to whatever, that only matters with long-term debt.
[1] http://en.wikipedia.org/wiki/2007_subprime_mortgage_financia...