This is the Morgan Stanley’s publication, “Structured Credit Insights - Instruments, Valuation and Strategies” (PDF). Link is to the 2006 version, which was the second edition.

The second edition contains 34 new and numerous revised chapters focused on several topics. Recent default events and significant repricing of tranche relationships motivated chapters on valuation using both risk-neutral and real world techniques. Continued growth in liquidity and breadth in the index tranche market resulted in the inclusion of material on investment strategies and relative value. A maturing market resulted in reports on new types of structures, including forward credit risk, managed portfolios and super senior tranches. Important regulatory capital and accounting policy shifts encouraged material on secular shifts in investment style. Synthetic innovation in the structured finance space prompted material on hybrid structured finance CDOs, and a booming leveraged loan market motivated the study of risks in the CLO market. We hope Morgan Stanley clients find this book useful, and we welcome any feedback so that we can improve future editions.

The 2007 version, the third edition (you’re on your own getting a copy!), expands to 688 pages from the previous year’s 560 pages. Much of it was written early in 2007. It says the following is new:

The third edition contains 29 new and numerous revised chapters focused on several topics. In the synthetic corporate credit space, we focus on the innovation theme, and include material on new equity structures (POs, IOs, rated equity), fixed recovery mezzanine tranches, true forward starting tranches, dynamic subordination, and CPDOs. Developments in the secured loan space motivated reports on the analysis of tail risk in cash CLOs, call risk, and a comparison of the well established cash CLO market with the nascent synthetic CLO market. Market movements encouraged strategic reports on unsecured high yield tranches, tranched index combinations, short-dated FTD baskets, alpha vs. beta, CDO management techniques and performance, and market unwind risks. In the asset-backed space, both innovation and a changing credit environment resulted in new material on high-grade ABS CDOs, CRE CDOs, ABS correlation, the sub-prime environment, and standardized TABX. Finally, market interest in hedging motivated the inclusion of material on structured hedging solutions. We hope Morgan Stanley clients find this book useful, and we welcome any feedback so that we can improve future editions.

It’s easy to imagine that all of those hundreds of pages of insights would make Morgan Stanley (MS) an “expert” in the area of trading these structured credit products. Well, maybe not; see this article from November 2007:

After his return to the firm more than two years ago, Mr. Mack spoke publicly of adopting a higher risk profile and pushed the firm into in-vogue investment areas like subprime mortgages, lending to private equity firms and using more of the firm’s own capital to take big trading positions. The strategy produced substantial profits for a time, but also resulted in a complex and ultimately disastrous trade in collateralized debt obligations earlier this year that led to the $3.7 billion write-down.

These businesses, while lucrative for trading firms like Goldman Sachs, were outside the traditional expertise of Morgan Stanley. Now, after a $940 million write-down in the third quarter and given the possibility that the firm could write down another $1 billion to $2 billion — with $6 billion being a worst case — Morgan Stanley’s total losses for this year are coming uncomfortably close to the $8.4 billion suffered by Merrill Lynch.

In light of recent events - clients fleeing from Morgan Stanley’s prime brokerage business and Morgan Stanley’s move away from the IB structure - reading one- and two-year old opinions on structured credit strategies can be quite entertaining, in a “failure porn” sort of way.

I don’t have a moral to the story, I’ve just been enjoying the irony of browsing through their insights on structured credit. Irony goes well with coffee on a Saturday evening.