Doug Kass
The past levering up and current panic was importantly abetted by the fund of funds industry, the dominant investor in the dominant investment class (hedge funds), which failed to analyze how and why many hedge funds reported such consistent investment returns -- especially of a collateralized debt obligation and collateralized loan obligation kind.
The greatest risk is in our financial intermediaries that drank the credit Kool-Aid served up by the mortgage brokers, the investment brokers/bankers and the Fed, which kept interest rates too low for too long. In looking at the dominant financial companies I have often written about and in quoting the lesson taught to me by my friend, bubby and pal, former Institutional Magazine's No. 1-rated bank analyst, Mark Biderman, during adjustments in risk premiums, it is not the "apparent" level of earnings (or net interest spreads) that are important; it is credit quality that is the culprit and, at times, the system's fundamental undoing. Does this all mean that our investment world is coming to an end? No, it does not. We could get a rally at any time. But the experience of the last two weeks should be a lesson learned. And that lesson is that a healthy amount of skepticism should provide the backdrop to all of our investment decisions -- in good times and in bad times. "We have met the enemies, and he is us."--Pogo
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