DOCSLIB.ORG

Collateralized Debt Obligations and the 2007–2008 financial Crisis

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Collateralized Debt Obligations and the 2007–2008 financial Crisis Collateralized debt obligations and the 2007–2008 financial crisis Jakub Vondrácekˇ December 17, 2020 Table of contents 1 2007 – 2008 Financial crisis 2 Collateralized debt obligations Jakub Vondrácekˇ Collateralized debt obligations 17th December 2020 2007–2008 Financial crisis What happened? Excessive risk taking by banks US housing bubble collapse and subsequent subprime mortgage crisis Bank failures Lehmann brothers bankruptcy Goldman Sachs paid $ 550 million to settle fraud charges after allegedly anticipating the crisis and selling toxic assets to clients 47 bankers served jail time $2 trillion loss from the global economy $ trillions in bailouts and stimulus Regulation (Dodd-Frank act, Basel III) Jakub Vondrácekˇ Collateralized debt obligations 17th December 2020 The housing bubble 1997 Asian crisis and 1998 Russian crisis led to a significant inflow of funds to the US, which led to easily available credit and a subsequent construction boom and debt-financed consumer spending Banks began giving out more loans at better terms (even to very risky customers), this led to the skyrocketing of housing prices Instruments to invest in the housing market Mortgage backed securities Collateralized debt obligations (CDO) Keyword: subprime Ratings: AAA, AA, A, BBB, BB, B, CCC, CC, C, D (S&P) Jakub Vondrácekˇ Collateralized debt obligations 17th December 2020 Collateralized debt obligations Jakub Vondrácekˇ Collateralized debt obligations 17th December 2020 Collateralized debt obligations Jakub Vondrácekˇ Collateralized debt obligations 17th December 2020 Collateralized debt obligations Jakub Vondrácekˇ Collateralized debt obligations 17th December 2020 Collateralized debt obligations Jakub Vondrácekˇ Collateralized debt obligations 17th December 2020 Collateralized debt obligations Jakub Vondrácekˇ Collateralized debt obligations 17th December 2020 Collateralized debt obligations Jakub Vondrácekˇ Collateralized debt obligations 17th December 2020 Collateralized debt obligations Jakub Vondrácekˇ Collateralized debt obligations 17th December 2020 Collateralized debt obligations Jakub Vondrácekˇ Collateralized debt obligations 17th December 2020 Collateralized debt obligations Jakub Vondrácekˇ Collateralized debt obligations 17th December 2020 Collateralized debt obligations Jakub Vondrácekˇ Collateralized debt obligations 17th December 2020 Collateralized debt obligations Jakub Vondrácekˇ Collateralized debt obligations 17th December 2020 Collateralized debt obligations Jakub Vondrácekˇ Collateralized debt obligations 17th December 2020 Collateralized debt obligations Jakub Vondrácekˇ Collateralized debt obligations 17th December 2020 Collateralized debt obligations Jakub Vondrácekˇ Collateralized debt obligations 17th December 2020 Collateralized debt obligations CDO squared CDO’s backed by tranches from other CDO’s Synthetic CDO CDO’s backed by other derivatives e.g. credit default swaps Around 2000, CDO’s were generally well diversified, but in 2007, the CDO’s became dominated by high risk tranches from other asset backed securities Many banks insured CDO’s using e.g. credit default swaps and the market for this kind of insurance grew very quickly Rising default rates of the underlying security (mortgage) led to steep decline in price of many CDO’s and was a large contributor to the financial crisis Jakub Vondrácekˇ Collateralized debt obligations 17th December 2020 Pricing of CDO’s CDO’s are generally very complicated derivatives and their pricing is a very difficult task Li Model - David X. Li (industry standard before the crisis), based on Gaussian copulas Duffie and Garleanu model Hull model Jakub Vondrácekˇ Collateralized debt obligations 17th December 2020 Movie recommendations The Big Short (Ryan Gosling, Steve Carell, Christian Bale, Brad Pitt), CSFD 75%. Margin Call (Kevin Spacey, Zachary Quinto), CSFD 71%. Jakub Vondrácekˇ Collateralized debt obligations 17th December 2020 Thank you for your attention! References https://www.khanacademy.org/economics-finance-domain/ core-finance/derivative-securities https://en.wikipedia.org/wiki/Collateralized_debt_obligation https://www.investopedia.com/ask/answers/040815/ are-all-mortgage-backed-securities-mbs-also-collateralized-debt-obligations-cdo. asp Jakub Vondrácekˇ Collateralized debt obligations 17th December 2020.
Load more

Recommended publications
  • Valentine's Day Lacks Focus
    Valentine’s Day lacks focus Too many stars, not enough substance Photo copyright cleared Julia Fiztpatrick (Jennifer Garner) receives flowers from Reed Bennett (Ashton Kutcher)in the new film Valentine’s Day. James Butler Anne Hathaway (great in Get Smart and Contributor receiving an Oscar nomination for Rachel Most movies in Hollywood these days Getting Married) and even lesser ones like often have a major star attached to them Jennifer Garner are completely mailing it like George Clooney, Christian Bale, or in, it gets hard to really care about any of Jennifer Aniston, but it really is rare for the characters’ problems. a movie to have as many huge names as The screenplay itself is one of the Valentine’s Day. movie’s redeeming factors. Despite some Clearly catering to the mainstream cringe-worthy lines, it manages to have date movie audience, Valentine’s Day is points that were actually pretty funny. huge on star power, but very low on actual With a few too many story lines, substance. however, it stretches itself too thin, trying The biggest surprise about this movie to move the audience with characters was how they managed to get so many that were not given enough time or effort major stars into a motion picture and not throughout the film. get at least one memorable performance It also suffers from Crash syndrome, out of any of them. i.e., it bashes you over the head with The high profile cast includes Ashton its interconnected story lines and over- Kutcher, Jessica Alba, Julia Roberts, arching theme about the power of love.
    [Show full text]
  • Is the Stock Market Rigged? You May Have Heard About the 60 Minutes
    Is the Stock Market Rigged? You may have heard about the 60 Minutes interview with author Michael Lewis, a former Wall Street broker, author of "Liar's Poker" and "The Big Short," who has just come out with a new book entitled "Flash Boys." Lewis is an eloquent and astute critic of Wall Street's creative and predatory practices, and in his new book (and in the 60 Minutes interview) he offers evidence that the stock market is "rigged" by a cabal of high-frequency traders, abetted by stock exchanges and Wall Street firms. While it is true that certain parties may gain quicker access than others, some believe, the price discovery process (by allowing high frequency trading) is improved and, therefore, makes the process better for all. Regardless, for anyone practicing long-term investing, high frequency trading activities are essentially irrelevant Lewis exposed an advantage that certain traders receive by building high-speed fiber optic cable feeds directly into exchange computers that match buyers and sellers. Some actually have their trading computers located in the same room as the New York Stock Exchange and Nasdaq servers. And some pay extra for access to more information on who wants to buy and sell. All of this is perfectly legal, but Lewis points out that it is also shady. Why should some buyers and sellers have millisecond advantages over others? The problem is that these firms are able to jump in ahead of you and me and buy stocks at lower intraday prices, and then, a few seconds later, sell to the highest bidder before you and I would even see that bid on our screen.
    [Show full text]
  • Mark׳S Blog: “Michael Lewis״
    Mark’s Blog: “Michael Lewis” I’m a big fan of Michael Lewis’ books. Liar’s Poker. Money Ball. The Big Short. He’s part reporter, part financial analyst, part social scientist and a great story teller. I’ve just finished a book he published a couple of years ago titled The Undoing Project. It chronicles the lives and work of two Israeli-American psychologists, Daniel Kahneman and Amos Tversky. Kahneman won the Nobel Prize in Economics in 2002 based largely on work he did with Tversky years before. It’s worth noting that Tversky died in 1996 and the Nobel is not awarded posthumously, but he did win a MacArthur prize before passing away. The focus of much of their work was how we make decisions. Most of us view ourselves as relatively rational in that when we’re presented with the facts, we believe we can determine the right course of action to take based on the information we’re presented. Kahneman and Tversky’s research proved otherwise. Ultimately, we carry a bundle of biases that can distort our decision-making ability. Sometimes it is to avoid risk. Sometimes it is to affirm what we have already determined should be the desired outcome. Tversky said “People predict by making up stories.” Lewis said of Kahneman “To Danny the whole idea of proving that people weren’t rational felt a bit like proving that people didn’t have fur.” When asked if his and Tversky’s work fed into the new and growing field of artificial intelligence Kahneman remarked “We study natural stupidity instead of artificial intelligence.” Reading the stories of their relationship and their work I was struck by their ongoing lack of tact with each other and those they met.
    [Show full text]
  • The Big Short Author: Michael Lewis Extract
    The Big Short Author: Michael Lewis Extract Prologue Poltergeist The willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grown-ups remains a mystery to me to this day. I was twenty-four years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall. Wall Street's essential function was to allocate capital: to decide who should get it and who should not. Believe me when I tell you that I hadn't the first clue. I'd never taken an accounting course, never run a business, never even had savings of my own to manage. I'd stumbled into a job at Salomon Brothers in 1985, and stumbled out, richer, in 1988, and even though I wrote a book about the experience, the whole thing still strikes me as totally preposterous - which is one reason the money was so easy to walk away from. I figured the situation was unsustainable. Sooner rather than later, someone was going to identify me, along with a lot of people more or less like me, as a fraud. Sooner rather than later would come a Great Reckoning, when Wall Street would wake up and hundreds, if not thousands, of young people like me, who had no business making huge bets with other people's money or persuading other people to make those bets, would be expelled from finance. When I sat down to write my account of the experience - Liar's Poker, it was called - it was in the spirit of a young man who thought he was getting out while the getting was good.
    [Show full text]
  • Christian Bale, Steve Carell, Ryan Gosling and Brad Pitt Star in the Unbelievable True Story the BIG SHORT, Coming to Blu-Ray™ Combo Pack March 15, 2016
    February 16, 2016 Christian Bale, Steve Carell, Ryan Gosling and Brad Pitt Star in the Unbelievable True Story THE BIG SHORT, Coming to Blu-ray™ Combo Pack March 15, 2016 Critically Acclaimed Hit is Nominated for Five Academy Awards Including Best Picture, Best Director and Best Supporting Actor HOLLYWOOD, Calif.--(BUSINESS WIRE)-- "One of the most absorbing and entertaining films of the year" (Mara Reinstein, Us Weekly), director Adam McKay's "witty, smart, sharp and funny" (Scott Mantz, "Access Hollywood") masterpiece THE BIG SHORT arrives on Blu-ray Combo Pack, DVD and On Demand March 15, 2016 from Paramount Home Media Distribution. This Smart News Release features multimedia. View the full release here: http://www.businesswire.com/news/home/20160216005087/en/ Nominated for five Academy Awards including Best Picture, Best Director, Best Supporting Actor (Christian Bale), Best Adapted Screenplay and Best Editing, THE BIG SHORT also was named one of the top 10 films of the year by The Wall Street Journal, New York Times, Los Angeles Times, Entertainment Weekly, Us Weekly, the American Film Institute and many more. Based on the best-selling book by Michael Lewis, THE BIG SHORT details the true story of four outsiders who risked everything to take on the big banks during the greatest financial fraud in U.S. history. Christian Bale, Steve Carell, Ryan Gosling and Brad Pitt deliver career-best performances in "the most wildly entertaining must-see movie of the year" (Toni Gonzales, Fox-TV). THE BIG SHORT Blu-ray Combo Pack with Digital HD is packed with over an hour of bonus content.
    [Show full text]
  • The Big Short: Inside the Doomsday Machine
    The Big Short Inside the doomsday machine Also by Michael Lewis Home Game Liar's Poker The Money Culture Pacific Rift Losers The New New Thing Next Moneyball Coach The Blind Side EDITED BY MICHAEL LEWIS Panic The Big Short INSIDE THE DOOMSDAY MACHINE Michael Lewis W. W. NORTON & COMPANY NEW YORK LONDON Copyright (c) 2010 by Michael Lewis All rights reserved For information about permission to reproduce selections from this book, write to Permissions, W. W. Norton & Company, Inc., 500 Fifth Avenue, New York, NY 10110 ISBN: 978-0-393-07819-0 W. W. Norton & Company, Inc. 500 Fifth Avenue, New York, N.Y. 10110 www.wwnorton.com W. W. Norton & Company Ltd. Castle House, 75/76 Wells Street, London W1T 3QT For Michael Kinsley To whom I still owe an article The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him.--Leo Tolstoy, 1897 Contents Prologue Poltergeist Chapter 1 A Secret Origin Story Chapter 2 In the Land of the Blind Chapter 3 "How Can a Guy Who Can't Speak English Lie?" Chapter 4 How to Harvest a Migrant Worker Chapter 5 Accidental Capitalists Chapter 6 Spider-Man at The Venetian Chapter 7 The Great Treasure Hunt Chapter 8 The Long Quiet Chapter 9 A Death of Interest Chapter 10 Two Men in a Boat Epilogue Everything Is Correlated Acknowledgments PROLOGUE Poltergeist The willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grown-ups remains a mystery to me to this day.
    [Show full text]
  • Cold War Fever As 1950S Spies, Romance Lead Bafta Picks
    SATURDAY, JANUARAY 9, 2016 (From left) Director/writer Alejandro Gonzalez Inarritu, actors Tom Hardy and This photo provided by Open Road Films shows, (from left) Michael Keaton, as Walter “Robby” Robinson, Liev Leonardo DiCaprio arrive at the world premiere of “The Revenant” at the TCL Schreiber as Marty Baron, Mark Ruffalo as Michael Rezendes, Rachel McAdams, as Sacha Pfeiffer, John Slattery Chinese Theatre, in Los Angeles. as Ben Bradlee Jr., and Brian d’Arcy James as Matt Carroll, in a scene from the film, “Spotlight.” The main Bafta Cold War fever as 1950s spies, nominations Best film romance lead Bafta picks “The Big Short” “Bridge of Spies” “Carol” teven Spielberg spy thriller “Bridge of Spies” known for his leading role in television hit “The Revenant” and “Carol”, a story of romance between two “Breaking Bad”. “Spotlight” Swomen, led the nominations on Friday for Britain’s Bafta film awards, seen as a tip for later Outdoor epic Outstanding British film Oscar success. The two Cold War-era stories set in In the best director category, Spielberg is up “45 Years” the United States in the 1950s have nine nomina- against Mexico’s Alejandro Gonzalez Inarritu, “Amy” tions each and are both nominated in the best Britain’s Ridley Scott, and US directors Adam “Brooklyn” film category. McKay and Todd Haynes. “I’m so pleased to see a “The Danish Girl” They are up against financial drama “The Big great wide sweep of films represented, both inti- “Ex Machina” Short” and survival tale “The Revenant”, which has mate portraits-if you might call them that-like eight nominations.
    [Show full text]
  • The Big Short Is the Movie of the Year?
    January 2016 The Big Short is the Movie of the Year? What this sleeper movie may teach us about employer responsibility to the 401k plans they sponsor? Happy New Year! Thanks for Terry Morgan, AIF and being one of over 4000 CFO's, President - Ok401k HR Directors, CPA's and employers that read our monthly newsletter aimed at decision makers that supervise their retirement plan for the many participants and beneficiaries that rely upon them to make the right decisions on their retirement money. The movie of the year is obviously Star Wars. Even before the movie came out last week, it sold more pre sold tickets than the actual opening night of previous box office gazzilionaire, Jurassic Park. But, I have decided to give the runner up silver medal to the folks who made The Big Short (released on Wednesday, December 23.) I like to read and I loved the book way back in 2011 when the Big Short hit the book stores. The actors selected are hilarious and I could not think of a better cast that is attempting to make a rather complicated subject (mortgages and Wall Street) and break it down into terms even the average middle American can understand. The Big Short starring Christian Bale, Steve Carell, Ryan Michael Lewis wrote best sellers such as Money Gosling and Brad Pitt may Ball and the Blind Side. really surprise you. Like Star Now his recent best seller Wars I have not seen it yet but the Big Short has been I am sure it's going to be a made into a movie Christmas treat.
    [Show full text]
  • SEMESTER MOVIE TITLE CHARACTER ACTOR Sum 2007 "V
    SEMESTER MOVIE TITLE CHARACTER ACTOR Sum 2007 "V" for Vendetta "V" Hugo Weaving Fall 2006 13 Going on 30 Jenna Rink Jennifer Garner Sum 2008 27 Dresses Jane Nichols Katherine Heigl ? 28 Days Gwen Gibbons Sandra Bullock Fall 2006 2LDK (Two Lethal Deadly Killers) Nozomi Koike Eiko Spring 2006 40 Year Old Virgin Andy Stitzer Steve Carell Spring 2005 50 First Dates Henry Roth Adam Sandler Sum 2008 8½ Guido Anselmi Marcello Mastroianni Spring 2007 A Beautiful Mind John Nash Russell Crowe Fall 2006 A Bronx Tale Calogero 'C' Anello Lillo Brancato / Francis Capra Sum 2008 A Bronx Tale Sonny LoSpeecchio Chazz Palmenteri Fall 2006 A Clockwork Orange Alexander de Large Malcolm McDowell Fall 2007 A Doll's House Nora Helmer Claire Bloom ? A Few Good Men Lt. Daniel Kaffee Tom Cruise Fall 2005 A League of Their Own Jimmy Dugan Tom Hanks Fall 2000 A Perfect Murder Steven Taylor Michael Douglas ? A River Runs Through It Paul Maclean Brad Pitt Fall 2005 A Simple Plan Hank Mitchell Bill Paxton Fall 2007 A Streetcar Named Desire Stanley Marlon Brando Fall 2005 A Thin Line Between Love and Hate Brandi Lynn Whitefield Fall 2007 A Time To Kill Carl Lee Haley Samuel L. Jackson Spring 2007 A Walk to Remember Landon Carter Shane West Sum 2008 A Walk to Remember Jaime Mandy Moore ? About Schmidt Warren Schmidt Jack Nickleson Fall 2004 Adaption Charlie/Donald Nicholas Cage Fall 2000 After Hours Paul Hackett Griffin Dunn Spring 2005 Al Capone Al Capone Rod Steiger Fall 2005 Alexander Alexander Colin Farrel Fall 2005 Alice in Wonderland Alice Voice of Kathryn Beaumont
    [Show full text]
  • Michael Lewis's the Undoing Project: a Friendship That Changed Our
    Midwest Social Sciences Journal Volume 23 Issue 1 Article 12 11-2020 Michael Lewis’s The Undoing Project: A Friendship That Changed Our Minds David McClough Ohio Northern University Follow this and additional works at: https://scholar.valpo.edu/mssj Part of the Anthropology Commons, Business Commons, Criminology Commons, Economics Commons, Environmental Studies Commons, Gender and Sexuality Commons, Geography Commons, History Commons, International and Area Studies Commons, Political Science Commons, Psychology Commons, and the Urban Studies and Planning Commons Recommended Citation McClough, David (2020) "Michael Lewis’s The Undoing Project: A Friendship That Changed Our Minds," Midwest Social Sciences Journal: Vol. 23 : Iss. 1 , Article 12. DOI: 10.22543/0796.231.1033 Available at: https://scholar.valpo.edu/mssj/vol23/iss1/12 This Article is brought to you for free and open access by ValpoScholar. It has been accepted for inclusion in Midwest Social Sciences Journal by an authorized administrator of ValpoScholar. For more information, please contact a ValpoScholar staff member at [email protected]. McClough: Michael Lewis’s The Undoing Project: A Friendship That Changed Ou Book Review Michael Lewis’s The Undoing Project: A Friendship That Changed Our Minds* DAVID MCCLOUGH Ohio Northern University Lewis, M. 2017. The Undoing Project: A Friendship That Changed Our Minds. New York: W. W. Norton & Company. 362 pp., $28.95. ISBN:978-0393-25459-4. ABSTRACT The Undoing Project examines the relationship between two psychologists, Amos Tversky and Daniel Kahneman, whose work altered how we understand the functioning of the mind. In this book, Lewis embarks on a journey to understand and explain psychological research to a popular audience.
    [Show full text]
  • COVID-19, Student Loan Discharge in Bankruptcy, and the SLABS Market
    SMU Law Review Volume 73 Issue 4 Article 4 2020 The Next "Big Short": COVID-19, Student Loan Discharge in Bankruptcy, and the SLABS Market Samantha L. Bailey Roger Williams University School of Law, [email protected] Christopher J. Ryan Jr. Roger Williams University School of Law, [email protected] Follow this and additional works at: https://scholar.smu.edu/smulr Part of the Law Commons Recommended Citation Samantha L. Bailey & Christopher J Ryan, The Next "Big Short": COVID-19, Student Loan Discharge in Bankruptcy, and the SLABS Market, 73 SMU L. REV. 809 (2020) https://scholar.smu.edu/smulr/vol73/iss4/4 This Article is brought to you for free and open access by the Law Journals at SMU Scholar. It has been accepted for inclusion in SMU Law Review by an authorized administrator of SMU Scholar. For more information, please visit http://digitalrepository.smu.edu. THE NEXT “BIG SHORT”: COVID-19, STUDENT LOAN DISCHARGE IN BANKRUPTCY, AND THE SLABS MARKET Samantha L. Bailey & Christopher J. Ryan, Jr.* ABSTRACT Even before the spread of the COVID-19 pandemic, student loan debt— totaling over $1.64 trillion—was a cause for concern, as it is the second largest source of consumer debt in the United States, trailing only mortgage debt. And like collateralized mortgage debt, there is a market for collateral- ized student debt. Student loan asset-backed securities (SLABS) are the securitized form of student loan debt, repackaged as a marketable financial instrument. As with any investment vehicle, asset-backed securities like SLABS come with risk, particularly when borrowers default on their loans or have their debt discharged through bankruptcy proceedings.
    [Show full text]
  • Book Your Screenings & Events At
    Book Your Screenings & Events at 10850 West Pico Blvd. Los Angeles, CA 90064 • Convenient West Side Location • Unmatched Customer Service • Convenient Access for Over 50% of Academy Membership • Plenty of Parking • Over 500 Successful Events Each Year Contact Tom Beddow at 424.731.2429 or [email protected] WORLD CLASS FACILITY • 12 Auditoriums with various seating capacities (40, 100, 200, 250, and 300) • Stadium seating with extra high risers for optimum viewing • Screening lounge seating with plush leather sofas and love seats • Barco digital projectors with any digital format including DCP, BluRay, DVD, or Quicktime/mp4 • Klipsch speakers with DTS and Dolby Digital surround sound • Reception capacityfrom 5o-3oo people • Comfortable lounge setting • Flexible space • Catering options for every budget PAST Q&A APPEARANCES • CHRISTIAN BALE • FRANCIS FORD COPPOLA • RIDLEY SCOTT • PHILIP SEYMOUR HOFFMAN • SAOIRSE RONAN • MARK RUFFALO • STEVIE NICKS • JOAN RIVERS • JUDI DENCH • JK SIMMONS PATRICIA ARQUETTE • DAVID FINCHER • JOSEPH GORDON-LEVITT • SETH ROGEN • ELLEN PAGE • SEAN WILLIAM SCOTT • KRISTEN WIIG • JAMES MCAVOY • RYAN GOSLING • VIOLA DAVIS GOSLING • RYAN MCAVOY WIIG • JAMES • KRISTEN SCOTT WILLIAM SEAN • • SETH ROGEN ELLEN PAGE GORDON-LEVITT FINCHER • JOSEPH ARQUETTE • DAVID PATRICIA FIRST CLASS EVENT SUPPORT • We’re ready for all your Q&As and panel discussions • We provide the podium, director chairs, courtesy water for panelists, stage lighting, and handheld microphones • Connect your computer to the big screen and surround
    [Show full text]