Credit derivatives play a dangerous game
As the markets roil, manyanalysts predict a "flight to safety", warning that investors will pull out of risky stocks and bonds and head for a safer spot. But if investing has become a game of musical chairs, who will be standing when the music stops?
A clue lies in the nascent but massive market for credit derivatives. Credit derivatives are essentiallyside bets on a company's creditworthiness. You might pay us $1 a year in exchange for our promise to pay you $10 if General Motors defaults on its debt. In such a trade, you buy protection against a default, whereas we sell protection. Thus, credit derivatives resemble insurance.
There are reports of more than $17,000bn (￡9,250bn) of such bets outstanding, about the value of the entire US and UK equity markets combined. But that is almost certainly an understatement. One multinational bank, JP Morgan Chase, has said it holds $2,200bn of credit derivatives. Many of JP Morgan's trades, such as those of banks generally, are designed to hedge the risk associated with making loans. If a bank not only makes a loan but also places a credit derivatives side bet that the borrower will default, it might break even, losing on the loan but winning on the bet. If banks that lent money to companies such as Enron, WorldCom, Swissair and Railtrack had not used credit derivatives, some surely would have failed in the wave of defaults that followed.
While credit derivatives can generate benefits, they present two critical challenges that can precipitate a flight to safety and perhaps a financial crisis. Neither has received much attention.
First, credit derivatives create "moral hazard" when banks use them to shift risk. Moral hazard occurs when people take on excessive risk because they are insured. Fire insurance is the classic example. Those who have it are more likely to play with matches. Likewise, credit derivatives encourage banks to lend more than they otherwise would, at lower rates, to riskier borrowers. Banks with credit derivatives lack incentive to keep a close watch on borrowers. Enron's lenders used an estimated 800 credit derivatives to offload $8bn of risk. Because credit derivatives leave borrowers unmonitored, they fuel the credit expansion. And, as Charles Kindleberger, the late financial historian, noted, unmonitored expansion of credit precipitates the manias that lead to market panics and crashes.
In theory, the pension funds and insurance companies that sell credit protection should do the monitoring. But because they do not make the loans, they have no relationship with the borrower. The string of contracts runs from borrower to bank to third party. The third-party watchdog does no good outside the fence.
These risks are related to the second problem: "informational asymmetry" - simply put, the gap between thecomplexities of credit derivatives and what the people who deal in them can understand. Even the savviest investors and regulators are surprised and exasperated by the opacity of these instruments. Warren Buffett, the renowned investor, once described credit derivatives as "financial weapons of mass destruction". If such a wise man cannot understand credit deriv???-atives, what is a typical credit officer to do? And how should an investor evaluate the credit derivatives exposure of a bank or pension fund?
Credit derivatives contracts are intricate and payouts can depend on legal terms that are not well understood. Nor is information easily avail???-able. Until recently, parties to a credit derivative felt no need to notify each other, much less the market, if they sold their interest. Some disclosure has improved but the market remains maddeningly opaque, even to insiders. Basic documentation for every big transaction at least should be made publicly available.
If corporate defaults increase and investors seek safety, likely victims will include not only pension funds and insurance companies but hedge funds, which have a growing share of the credit derivatives market. Because hedge funds take concentrated positions and have sharp incentives to perform, they are better able to evaluate credit derivatives risks than insurance companies or pension funds. Their buying and selling creates market pressure that indirectly can do some of the monitoring banks no longer carry out directly. But the growing role of hedge funds also generates risks. Many have placed highly leveraged and unhedged bets on credit derivatives, and tend to act in concert.
We know from the crisis surrounding the collapse of Long Term Capital Management, the large hedge fund, that liquidity - the ability to find a seller when the music stops - is crucial to the security of financial markets. Markets lately have been awash in liquidity largely because banks are confident they can use credit derivatives to offset the risk of loans. But if the hedge funds and others who have been selling insurance to banks decide to seek safety, the music will end.
Unfortunately, opinion on the credit derivatives issue is polarised between alarmists who oppose financial innovation and supporters who naively embrace it. The truth is in the middle. Credit derivatives help banks reduce risks but in doing so, they create the danger of systemic market failure.Ideally, financial regulation builds confidence by requiring enough disclosure to enable investors to assess risks. The problem with unregulated derivatives markets is that investors learn too late. When they simultaneously lose faith, everyone looks for a seat.
Frank Partnoy and David Skeel are professors of law at the University of San Diego and the University of Pennsylvania, respectively; their views are drawn from a larger project, The Promise and Perils of Credit Derivatives
信贷衍生品的“道德风险”
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市场出现混乱时，许多分析师都预测投资者将“向安全地带逃亡”。他们警告称，投资者会从高风险的股票和债券中抽身，转而寻找更为安全的投资。但如果投资变成了一场“抢椅子游戏”，那么，当音乐停下来的时候，站着的又会是谁呢？
信贷衍生品市场可以为这一问题的答案提供线索，这一市场虽处于萌芽阶段，但规模却十分庞大。从本质上讲，信贷衍生品是对一个公司是否信誉良好的附加赌注。比如，你可以每年付给我们1美元，以此换取我们的承诺：如果通用汽车(General Motors)发生债务拖欠，我们将付给你10美元。在这样一桩交易中，你购买了防范债务拖欠的保障，而我们则出售了这种保障。因此，信贷衍生品类似于保险。
有报道称，现有的信贷衍生产品价值逾17万亿美元，约为美国和英国证券市场市值的总和。但几乎可以肯定，这是一个比较保守的估计。跨国银行摩根大通(JP Morgan Chase)就曾表示，自己持有2.2万亿美元的信贷衍生品。摩根大通的许多交易，诸如那些银行通常进行的交易，都是为对冲放贷风险而设计的。如果一家银行不仅放贷，同时也为借方日后违约拖欠买下一种信贷衍生品的“附加赌注”，那么它就可能盈亏平衡――在贷款方面蒙受了损失，却在信贷衍生产品上获得补偿。如果那些把钱借给安然(Enron)、世通(WorldCom)、瑞士航空公司(Swissair)和英国铁路线路公司(Railtrack)等企业的银行没有使用信贷衍生品的话，一些银行早就在随后的违约拖欠浪潮中倒闭了。
虽然信贷衍生品能带来好处，但同时也带来了两个严峻挑战，它们可能促成“向安全地带逃亡”现象，并可能引发金融危机。下述两种挑战都没有引起人们太多关注。
首先，当银行利用信贷衍生品转移风险时，信贷衍生品会引起“道德风险”。当被保险人因投保而敢于承担过多的风险时，道德风险就出现了。火灾保险就是一个典型的例子，买了火灾险的人更有可能玩火柴。同样，信贷衍生品会鼓励银行以较低的利率、把更多贷款发放给风险程度更高的借方，而如果没有信贷衍生品，银行就不会这么做。持有信贷衍生品后，银行密切监控借方的动机就会不足。安然的贷方就利用了大约800种信贷衍生品来转移80亿美元的贷款风险。信贷衍生品使借方处于无人监管的状态，从而加剧了信贷膨胀。正如已故金融历史学家查尔斯?金德尔伯格(Charles Kindleberger)所指出的那样，无人监管的信用膨胀会催生狂热心理，从而导致市场恐慌和崩盘。
从理论上讲，养老金和出售信用保障的保险公司应该负责监管。但是，由于不是它们发放的贷款，所以它们与借方之间不存在关系。一系列的合同经过了借方、银行，又到了第三方。而第三方的监管机构则身处局外，派不上什么用场。
这些风险与第二个问题有关：“信息不对称”――简单地说，就是在信贷衍生品的复杂性和参与其交易的人所能理解到的程度之间，存在着一条鸿沟。即便是最精明的投资者和监管者，也会对这些金融工具的晦涩难懂感到又惊有恼。著名的投资家沃伦?巴菲特(Warren Buffett)曾将信贷衍生品描述为“金融业的大规模杀伤性武器”。如果如此精明的人都无法弄懂信贷衍生品，那么一个普通的信贷管理人员又能如何呢？另外，一位投资者应该如何估算某银行或养老基金在信贷衍生品方面所面临的风险呢？
信用衍生品的合同内容错综复杂，其费用可能取决于让人不太明白的法律条款。相关信息通常也很难轻易获取。直到最近，一种信贷衍生品的买卖双方在出售所持有的产品时，还都认为无须相互通报，更不用说向市场披露了。某些方面披露的情况有所好转，但市场仍然保持令人恼火的不透明状态，甚至对于内部人士也是如此。至少，每笔大型交易的基本文件应该向公众披露。
如果企业违约拖欠现象增加、投资者开始寻求投资安全的话，潜在受害者将不仅包括养老基金和保险公司，还将包括对冲基金――它们在信用衍生品市场中所占的份额越来越大。因为对冲基金的持仓较为集中，又有着追求业绩的强烈动机，因此与保险公司或养老基金相比，它们对信贷衍生品风险的评估能力更强。对冲基金的买进卖出造成了市场压力，这种压力能够间接地起到一些银行不再直接负责的监督工作。但是，对冲基金地位的日益上升也带来了风险。很多对冲基金在信用衍生品方面进行了杠杠率较高、没有进行对冲的投资，并往往不约而同地采取行动。
我们从大型对冲基金长期资本管理公司(Long Term Capital Management)破产引发的危机得知，流动性――即当音乐停止时觅得卖家的能力――对于金融市场的安全至关重要。市场近来流动性泛滥，很大程度上是因为银行相信自己可以利用信贷衍生品，来抵消贷款风险。但如果对冲基金和其它那些一直为银行提供保险的机构决定寻求安全性的话，音乐就不会再响起来了。
不幸的是，人们对信贷衍生品的观点两极分化――杞人忧天者抵制金融创新，支持者则一味地支持。事实真相介乎于二者之间。信贷衍生品能帮助银行降低风险，但这种做法也导致了市场系统性崩盘的危险。从理想化角度讲，金融监管可以要求披露足够的信息，使投资者能够评估风险，从而树立信心。但得不到监管的衍生品市场的问题是，投资者知道得太晚了。当他们同时失去信心时，每个人都在找椅子了。
弗兰克?帕特诺伊(Frank Partnoy)和戴维?斯基尔(David Skeel)分别是圣地亚哥大学(University of San Diego)和宾夕法尼亚州大学(University of Pennsylvania)法学教授。他们的观点来自一个规模更大的项目――“信贷衍生品的保障与危险”(The Promise and Perils of Credit Derivatives)。
