A Brief Note On Financial Derivatives

A Brief Note On Financial Derivatives
Financial Derivatives Introduction Derivatives are financial instruments whose values are derived
from the values of other, more basic, entities, known as the underlying assets. For example, the
value of a stock option depends on the price of the relevant stock. Derivatives Markets In the
financial markets derivatives are traded on:  Stocks  Stock indices  Exchange rates  Interest
rates  Bonds  Credit risk  Commodities (such as electricity, wheat, oil) [4] Derivatives are
traded in two different ways – they are traded either on an exchange or over–the–counter (OTC).
The advantage of trading derivatives on an exchange is that the contracts are standardized by the
exchange and credit risk is eliminated. Open–outcry system was used ... Show more content on
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Answer: Simultaneously buying 100 shares in NY and selling them in London leads to a risk–free
profit of: 100 x [($2.03 x100) – $200] = $300 (ignoring transaction costs) Can this arbitrage
opportunity last for long? Futures A future is an exchange–traded contract between two parties and
the clearinghouse of a futures exchange to buy or sell a commodity whose quantity and quality are
determined in the contract at a specified price on a certain date in the future. [1] When there are
alternatives about what is delivered, where it is delivered, and when it is delivered, the party with
the short position chooses. [4] The clearinghouse responsibility is to ensure for the transaction to be
completed. Futures markets are organized so that the risk of default is completely eliminated. This is
possible by trading futures contracts on an organized exchange with a clearinghouse which steps in
between a buyer and a seller – this means that every trader in the futures markets has obligations
only to the clearinghouse. [1] The party that has agreed to buy the underlying asset has what is
termed a long position The party that
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Liar's Poker Essay
arMary Petritz
Real Estate Seminar
November 10, 2011
Liar's Poker
Liar's Poker, by Michael Lewis, is a book that thoroughly looks into the author's life as a broker on
Wall Street working for Salomon Brothers, the most profitable firm in the 1980's. Michael Lewis
graduated from The London School of Economics and decided to take his career into trading when
offered a job by the top– trading firm. At this time, the mortgage market started booming, and
money was flowing all over Wall Street. The secondary mortgage market was on the up–rise when
Michael Lewis accepted a job at Salomon Brother's. The secondary mortgage market was the selling
of bonds, with a promise to be paid back with mortgage loans. The lender, whomever that ... Show
more content on Helpwriting.net ...
In October 1981, Congress passed a tax break that allows thrifts to sell their money–losing mortgage
loans and reinvest the proceeds for higher returns. Mortgages were pooled by dollar amount and
interest rate and then traded. Salomon Brother's wanted to make mortgages look like bonds. Ranieri
had the loans transferred into bonds by getting a stamp of the U.S. government agency Ginnie Mae,
Frannie Mae, or Freddie Mac. The stamp was proof of the U.S. government guarantee that made
trading mortgage bonds possible. Ranieri's mortgage department made 215 million over 3 years.
After 6 years, Ranieri's mortgage department was making more money than any other Salomon
businesses combined. They formed this group of traders, all characterized as Italian, loud, and fat.
Ginnie Mae, Frannie Mae, and Freddie Mac were U.S. government agencies that guaranteed various
types of mortgage loans. They allowed mortgage lenders to obtain a better price for their mortgage
loans in the securities market. Lenders used the proceeds to make new mortgage loans available.
After some time, and with the mortgage market soaring, buyers and sellers were making their own
rules. Salomon Brother's created a CMO in 1983, which dominated the mortgage market in 1986.
The mortgage market was attractive to many investors due to the money outflow that it generated. It
was unattractive to some investors due to the stress, competition, and buying

Essay on US Bond Market
You have been asked to write a training document about the US Bond Market for use in the new
employee–training program. In your document, you must make sure to address each of the
following:
1a: The key players in the market; and the types of investments available to both individual
investors and institutional investors,
Bond Characteristics
A bond is a "security" which gives the holder a financial claim on the issuer. This claim protects the
holder in circumstances in which the issuer is unable to pay the amount due. It is made formal by
the "trust indenture", a legal document, which specifies all of the bond's features and the legal rights
and obligations of all the parties to the agreement (http://www.finpipe.com/bndchar.htm). ... Show
For further discussion on the main types of bonds, click on the links below: Asset–Backed Securities
Convertible Bonds Corporate Bonds Eurobonds Extendible/Retractable Bonds Foreign Currency
Bonds Government Bonds High Yield or "Junk" Bonds Inflation–Linked Bonds U.S. Treasury
Inflation–Protected Securities (TIPS) Mortgage–Backed Securities Zero Coupon or "Strip" Bonds
1b. The way transactions are carried out,
The above links address some of these issues. In other words, the bond market is a market in which
the bonds of corporations and governments are traded (i.e., banks, etc.) and transacted in various
settings (i.e., banks, private sectors, government agencies) and in various ways (i.e, over the
counter, electronically, telephone, etc.) www.econ100.com/eu5e/open/glossary.html.
In fact, bond investments are carried out in several ways, depending on the type of bond:
The bond market is any place where newly issued and existing bonds are bought and sold, usually
before maturity, by investors looking for income. This market can be a physical trading area (banks,
public sector, etc.), but more often the bonds are traded electronically by investors using computers
and telephone communications www.state.il.us/treas/Education/Glossary.htm. In general, in the
bond market, however, trades bonds are also issued by corporation and government. • Companies
can

Fair Value Hierarchy
Memorandum to: Accounting department of family finance co. from: Daisy subject: fair value
hierarchy date: december 15, 2012
Introduction
Family Finance Co. (FFC), a publicly traded commercial bank, invests in a variety of securities in
order to enhance returns greater than interest paid on bank deposits and other liabilities. The primary
investments of FFC are collateralized debt obligation, mortgage–backed securities, auction–rate
securities, equity securities in nonpublic companies, interest rate swaps, and a fuel swap for
gasoline. FFC measures the derivative at fair value, presenting the portion of the fair value change
by using the fair value hierarchy. This memo will present the appropriate classification in the fair
value ... Show more content on Helpwriting.net ...
Also, as of the measurement date, there is lack of recent and relevant transactions. Thus, the fair
value measurement of this CDO should be classified as Level 3. By analyzing the market changes,
FFC determined that the CDO's market was not active and there has been a significant decrease in
the volume and level of activity. FFC used an income approach valuation technique which is present
value technique to make measurement. Because this approach can maximize the use of relevant
observable inputs and minimizes the use of unobservable inputs to reflect the fair value more
representatively.
Instrument 2 –Mortgage–Backed Security The fair value measurement of the Mortgage–Backed
Security investment shall be categorized within Level 2 of the fair value hierarchy. According to
ASC 820–10–35–52, "Level 2 inputs include the following: a. Quoted prices for similar assets or
liabilities in active markets". These inputs included quoted prices in active markets for similar
MBSs with insignificant adjustments for differences between the MBS held by FFC and similar
securities. In Q4 of 2012, the prices for transactions didn't reduce the relevant to the fair value
measurement. Therefore, the fair value measurement of this MBS should be classified into Level 2
of fair value hierarchy. The market of Mortgage–Backed Security

American International Group Case
American International Group is ?a holding company which, through its subsidiaries, is engaged in
a broad range of insurance and insurance–related activities in the United States and abroad?
(Sjostrum, 2009). The corporation that is based out of Delaware has operations in over 130 countries
and half of the companies? revenues come from foreign operations. American International General
or AIG offers general insurance, life insurance, retirement services, financial services, and asset
management.
American International Group was the largest insurance company in the United States, on February
28, 2007, their earnings were $6.20 million; sadly, just seven months later they were going bankrupt
and the needed the help of the government with an ... Show more content on Helpwriting.net ...
The program was managed by their institutional asset management unit. They loaned securities from
the investment portfolio to different financial institutions in exchange for cash collateral posted by
their borrowers. Over time, AIG had loaned $76 billion in securities to United States companies.
The investment portion of the AIG company had invested a huge portion of the residential
mortgage–backed securities, which already had a downfall in value and liquidity. The lending
program lacked sufficient funds to hold up to their collateral–return obligations (Sjostrum, 2009).
The government gave AIG a line of credit up to $85 billion in principal amount. It was a two–year
term ending September 22, 2010. The line of credit had an interest rate greater than 3.5% annum.
They were also required to pay an initial gross commitment fee of $1.7 million, along with an
ongoing commitment fee of 8.5% annum on undrawn amounts. American International Group had
to issue 100,00 shares of preferred stock, to AIG Credit Facility Trust, a new trust to benefit the
United States Treasury (Sjostrum,

Moral Hazard And The Banking System
Moral Hazard and the Banking System ACCT 6377: Corporate Governance Zachary Seay The
University of Texas at Dallas Introduction The moral hazard of bank bailouts is a very simple idea
enveloped in a very complex issue. Back in late 2007 to mid–2009 the United States and the global
economy faced one of the worst recessions the world has ever seen. In fact the time period has been
dubbed the Great Recession. Now at a broad level this recession was caused essentially by our large
banks buying and positively rating thousands upon thousands of mortgage backed securities and
collateralized debt obligations. In addition, the banks started getting to a point where they were
leveraged sometimes in excess of 30 to 1. The Federal Reserve initially recommended banks try to
stay around 10 to 1.(d) When the mortgages started to foreclose the value of those securities
plummeted and the banks started to lose solvency. With the issue of possible banks going into
bankruptcy the government of course got involved. Instead of letting the banks fail, taxpayers
instead bought up many of those toxic securities along with toxic bank stock and set the banks free
without so much as a slap on the wrist. This is what many have come to consider a moral hazard. It
is hard to tell if our actions really even helped as the economy didn't start getting to back to normal
until around 2012. Mortgage backed Securities & Collateralized Debt Obligations Mortgage backed
securities and collateralized debt

Asset-Liability Management
Asset–Liability Management
"Asset–Liability Management (ALM) can be defined as the ongoing process of formulating,
implementing, monitoring and revising strategies related to assets and liabilities to achieve an
organization 's financial objectives, given the organization 's risk tolerances and other constraints"
[1]. ALM also is known as balance sheet management. In banking activity the gap between assets
and liabilities can bring some consequences where the following risks are arose. And as a whole it
influences badly on the bank's functioning. Solving that problem is the primary goal of ALM. The
good balance sheet management means that the return on loans and securities as the highest as
possible, risks are minimized and ... Show more content on Helpwriting.net ...
Also it is involved in structuring the transaction. At the same time the underwriter provides
consultations in marketing and law.
Benefits and drawbacks of asset securitization
Before asset securitization was created, banks lent money to households and companies and these
loans existed in the banks' balance sheets until they mature or are paid off. This creates a
mismatching of assets and liabilities because typically banks use deposits and issuance of debts as a
provision of loans. And both of them have shorter period of maturity then banks' lending especially
cars and mortgages loans. Since the bank started to use securities backed by assets or in other words
it started to transfer the ownership of the assets to SPVs, the great opportunities have began widely
available for the bank. And the main of that fee income and additional trading opportunities are
providing. Securitization is the process of transforming illiquid assts into marketable securities. This
helps banks to maintain or even increase their liquidity because long–term loans are replaced to
SPVs. As a consequence, the gap between balance sheet sides also is diminished. And as a result the
position of the bank becomes more stable and it frees up capital to provide new loans. In other
words, the opportunity for bank to lend additional funds to the consumers appears. Moreover,
securitization provides quick access to funds that

Securitization Of Housing Bets
Mortgage–backed securities were bonds that were secured by home and other real estate loans. They
were created when a number of these loans, usually with similar characteristics, were pooled
together. As part of the housing and credit booms, the amount of financial agreements called
mortgage–backed securities, which derive their value from mortgage payments and housing prices,
greatly increased (Subprime mortgage crisis). Pools of loans were sold to federal government
agencies like Ginnie Mae or a government sponsored–enterprise such as Fannie Mae or Freddie
Mac. Securitization was the process of taking an illiquid asset, or group of assets, and through
financial engineering, transforming them into a security. A typical example of securitization ... Show
The worst of the mortgages were packaged and tranche into bonds and got rated AAA by these
credit rating agencies. By erroneously rating these bundles of mortgage–backed security payments
too highly, the credit rating agencies substantially contributed to the creation of toxic financial
assets. The problem was each agency were competing for the banks revenue, to keep the banks
business the agencies would always rate their bonds the highest possible grade of AAA.
Executives at Fannie Mae packaged both conventional and sub–prime loans, while operating almost
free of government oversight. Fannie's leaders spent lavishly to hire sixty Washington lobbyists who
showered congressmen with campaign funds. Executives at Fannie were generous to the politicians
because they wanted to ward off regulation (Toplin). Adding another layer to this financial disaster
happened when the Treasury bill rate went so low investors had to find other ways to yield a profit,
and with little oversight, executives certainly had no problem introducing creative financing to main
street America.
Mortgage underwriting standards declined precipitously during the boom

Mortgage Backed Securities : Cause And Effect
Mortgage–Backed Securities: Cause & Effect
Introduction
New–Age Guru Deepak Chopra once said that Wall Street was broken because it had succumbed to
greed, corruption, and pure speculation with no real values. At the time, Chopra was informing his
audience about the correlation between perception and fragility. Although perception can be
changed, fragility cannot: a 100lb sac of concrete is still the equivalent of a 100lb sac of dollars.
During the mid–1990s, the US economy had maintained stable growth, low unemployment, and low
inflation; it was the longest undisrupted growth period post– the Vietnam War, the Dot.com Boom,
and the stock market crash of 1987. Therefore, many politicians, economists, and consumers were
under the assumption that the economy was very stable. But in reality this growth period was a
façade because it was built on mortgage–backed securities. Ultimately, since fragility does not
change, mortgage–backed securities was one the main catalysts for the 2008 financial crisis, a crisis
that is still affecting the country today. Throughout this paper, I hope to inform you about the causes
and effects of mortgage–backed serecurties.
Cause: Creation of Mortgage Backed Securities
In the fall of 1982, Congress passed the Garn–St. Germaine Depository Institution Act, a law used
to revitalize the housing industry by strengthening the financial stability of mortgage lending
institutions (Reagan). Nevertheless, this well–wished Reagan initiative was

The Boom And Bust Of The Housing Market Bubble
As a member of the Millennial's and as a student of economics, The Great Recession, the greatest
economic downturn we've seen in 70 years is truly an intriguing topic. It is the first economic crisis
that many of my generation can truly say we lived through. With the burst of the housing bubble and
the failure of various financial institutions, the United States was dragged kicking and screaming
from the prosperous age of nearly uninterrupted economic growth since the early eighties, into an
unemployment rate of over 9% and a decline in Real GDP in the first time in decades. Years after
the end of the recession we still reel from its effects. How did the fiscal crisis begin in the first
place? What institutions helped exasperate the ... Show more content on Helpwriting.net ...
This led to the recession of 81–82 but managed to get inflation under 5% from the high double
digits it was under Nixon at the cost of a rather high unemployment rate of 10%. Many argue that
this and other policies under the Reagan administration known as Reagonomics, were what led to
the economic prosperity that we enjoyed in the 90's and 2000's. Rather than discuss what caused the
economic growth of the era, we examine a few of the effects it had on markets, especially housing.
The family home has always been a major part of the American dream, but it had an even bigger
role in the Great Recession. Under legislative pressure banks eased up on a lot of the loans that they
gave out. According to Peicuti (2014), "In the 2000s, the deregulation of the financial system and
development of the originate–to–distribute banking model led commercial banks to finance
subprime mortgages" (p.7). It then goes on to lists several characteristics that these borrowers may
have including, "relatively high default probability as evidenced by, for example, a credit bureau
risk... bankruptcy in the last five years... debt–service–to–income ratio of 50 percent or greater"
(p.7). All of this tells us the same story, these were risky loans to make. We've learned from class
that the interest rate is an indicator of the amount of risk on an asset. These loans however were not
properly assessed for the amount of risk on them. In short, the banks had taken on more risk than
they

Pros And Cons Of Securitization
INTRODUCTION
Financial transactions are very common in today's world. In these types of transactions, security
must be created. These creations of securities are known as securitization. Security is a financial
claim which is exhibited by document. The main feature of securitization is marketability.
Henceforth, securitization is creation of marketable and tradable securities which is hinged on the
inflows and outflows (cash flows) of the assets and liabilities of an individual. Cash flows refer to
those generated in the asset side of the balance sheet mainly receivables; cash in bank and hand,
plant and machinery. The Special Purpose Vehicle (SPV) uses these cash flows to issue marketable
securities to investors so that funds for the payment to the asset originator can be arranged.
Securitization is an innovation in the financial markets. For innovative financing sources, exceeding
individual's cash flow status, acquiring better liquidity position and issuing new securities to new
individuals or group of investors, these innovative financing sources have become a necessity. For
mortgage financing in secondary markets, securitized instruments are also essential. An asset is
eliminated from the balance sheet when it is securitized.
In ... Show more content on Helpwriting.net ...
These included deregulation of financial markets, globalization and the increasing number of cross
border transactions. All these resulted in the increment for opportunities in financial engineering.
Through securitization, one increases the capacity to lend of a Foreign Investment. Furthermore, he
does not have to search for additional capital or deposits. It is gaining worldwide recognition as the
most innovative form of asset financing. The profiling as well as the placement of different risks and
rights of a receivable with most efficient owners is one of the most important impacts of
securitization. Securitization provides the following

Essay on Covered Bonds
With liquidly rationing, (credit crunch) does offering covered bonds hold the answer or does it just
offer banks the opportunity to increase their margin?. Discuss critically.
Introduction
In the modern day world, with technology and global markets expanding, the need for credit is a
constant issue for economies to monitor. Liquidity rationing has been most relevant since the GFC,
when the credit market essentially froze, sending financial markets in turmoil. Therefore finding
ways to increase liquidity at a time when markets are volatile requires instruments of low risk.
Covered bonds have recently gained momentum as a popular tool for banks to increase their
liquidity whilst taking on very limited risk.
Theory
A Credit Crunch also ... Show more content on Helpwriting.net ...
Prior to the intensification of the financial crisis in October 2008, covered bonds were a key source
of funding for euro area banks. The market had grown to over €2.4 trillion by the end of 2008,
compared with about €1.5 trillion in 2003 (ECBC, 2009). The lack of credit risk transfer with
covered bonds is an important distinction with this asset class compared with, for example, asset–
backed securities (ABS) and other securities that were subject to securitization. This may well
explain the resilience of the covered bond market at the initial stage of the crisis in August 2007.
(Biswas, 2010) Investors' affinity for covered bonds can be explained by their relative safety
compared with any non–securitized asset class. In relation to covered bonds, a pool of collateral
backs the credit risk of the issuer, which is usually of high quality. Despite this, however, the
covered bond market was not totally immune to the effects of the crisis. Up to the intensification of
the crisis following the collapse of Lehman Brothers in mid–September 2008, it was clear that the
covered bond market had outperformed other wholesale funding instruments. The widening of
spreads was much less substantial for covered bonds than other ABS and unsecured debt. (Biswas,
2010) Graph 1 backs up this argument that the widening of spreads was less significant for covered
bonds as

Implementation of Student Loan Asset-Backed Securitization...
IMPLEMENTATION OF STUDENT LOAN ASSET–BACKED SECURITIZATION IN
MALAYSIAN HIGHER EDUCATION. (A STUDY CONDUCTED AT MALAYSIAN ECONOMY
IN THE ASIA) Paper no.60 ABSTRACT The research is to investigate the alternative financing in
Malaysian Higher Education by introducing student loan securities as a type of asset–backed
securitization. It will analyse and consider possible effects in order to relieve the pressure currently
imposed on the Government Budget. The aim of this research is to identify the outstanding systems
financed by capital market and banking systems in the United States and Chile and suggest how a
similar system can be adopted to improve the National Higher Education Fund Corporation
(PTPTN) as main corporation ... Show more content on Helpwriting.net ...
This research considers the role of government as a guarantor without burdening its financial
capacity. However, the private capital markets and banking systems will become key players to
provide financial resources to students. My study confirms the promising trend in Malaysia after the
introduction other types of asset–backed securities such as lease, auto loans, credit cards receivables
and commercial mortgages. This advanced financial techniques instruments had help to minimized
the risk and reduce part of the social problem. Though only spanning over sixth years, the
securitization process and its continuous innovation have contributed to resolving and risk managing
problems in Malaysia. SCOPE AND LIMITATION OF THE STUDY The scope of this research
particularly focuses on the student loans problem, which has not been involved yet in Malaysia. The
work considers the characteristics of National Higher Education Fund Corporation (PTPTN),
suggests a structure for student loans securitization, and study the potential of the asset–backed
securitization process in resolving the student loan problem. A limitation for this research is that we
will able to focus only on the United States and Chile student loans systems, as that process is not
yet implemented very broadly worldwide. The United States has implemented the federal Family
Education Loan Program (FFELP) to provide funds for students.

Case Study: Fraikin Sa
Case Study: Fraikin SA
Comparison of Three Financing Options
a. Background Analysis Current Situation Founded in 1994, Fraikin group, the largest French
truck rental operation, took up 30% of the market share by 2004. The core operation business of
Fraikin is to provide its clients with customized trucks and commercial vehicles, primarily under
long–term operating lease contracts. During the period from 1999 to 2002, the number of the leased
trucks was continuously increasing (from 59,600 to 74,300), which indicated a stable growth of the
company and a possibly booming market in the future. However, as a capital–incentive company,
only continuous investment on fleet maintenance and expansion can retain Fraikin's leader position
in the ... Show more content on Helpwriting.net ...
It also meant the insufficient operating income cannot afford the interest, debt or preferred stock
dividend which were required by investors and shareholders and thus would hurt the value of the
firm. If, LBO financing would improve the operating ability, thus increase EBITRDA more than
interest and debt growth, this option should be applied. However, if as Fraikin expected, the
company would experience worst scenario in the future, the EBITRDA and cash inflow would be
even tougher and it is better to consider other financing alternatives. Studies suggested that the
occurrence of LBOs is positively related to the existence of target firms that have large and stable
cash flows and the possibility of future tax savings. Compared to the current situation of Fraikin,
who was facing negative cash flow and a high debt–toequity of 2:1, continuous financing through
LBO may give rise to overleverage. c. Assets–backed Loan Generally, an assets–based loan is the
loan secured by a company's assets. In this case, longterm lease receivables was regarded as backed
assets to secure the loan. 14.3% of the total fleet was involved in this option and 19,925 long–term
contracts with average term of 5 years would be used as collaterals. Advantages and Disadvantages
Asset–based loan make

The Big Short ' Is A Financial Crisis Movie Directed By...
"The big short" is a financial crisis movie directed by Adam McKay and released in 2015. It bases
on a truth story that some smart investors bet against the United State mortgage market in 2006 to
2008. Michael Burry, an eccentric hedge fund manager, discovered with his own research that the
United State housing market was a bubble about to burst within in a couple years. He started to bet
against the United State mortgage backed securities market by convincing some large banks to
create a credit default swap market, which was kind of a bond insurance police, and he invested
about $1,3 billion in the credit default swap market. If he was right about the market collapse, his
fund would bust up very high and make a hug profit. On the other hand, his fund would be gone if
the market stay stable.
Through Michael Burry's idea and action, the banker Jared Vennett who worked at Deutschebank
quickly learned and understood that Burry's predictions was likely true, and he made himself an
opportunity of earning fees on selling those credit default swap to the firms, which the firms could
earn profit when the underlying mortgage bonds fail. He came to Mark Baum office and tried to
convince him to buy credit default swaps. His explanation about the market collapse would being
more perpetuated by the packaging of subprime loans into collateralized debt obligations (CDOs).
Through Vennett's convincing, Mark Baum and his associated started to investigate the Miami
housing market. He first

Case Study Of Sukuk Defaults
Methodology used in this report is explanatory research case study and qualitative research method
where data regarding the sukuk defaults and shariah issues in Sukuk Asset–Based and Sukuk Asset–
Backed are being collected. From these data collection, the development of theory can be focused
through an approach of case studies and this method can relate to the growing issues of sukuk
defaults. (Eisenhardt, 1989; Yin, 1994). An explanatory method is used among other qualitative
approaches in conducting a research because it can prove the real default cases that happened in
Sukuk through the reasons behind it. Besides, it also can give more meaning to this research report.
Qualitative method is easier method to be used because data regarding ... Show more content on
Helpwriting.net ...
Wa'ad which is the promise to repurchase the underlying asset at par in substance is a guarantee of
principal without the actual performance. The Wa'ad is totally acceptable Islamic financial
instrument if used by its own but status from Amanah based will change to debt security when
comingled with other credit enhancements. Whether in the case of the venture is beneficial or not,
the borrower (originator) has to pay that this situation can create an injustice. AAOIFI also state in
its Sukuk standard that there shouldn't be any axiom that depicts the stipulation of bounding the
originator to repay at par or he must pay predetermined and an uninterrupted return erstwhile than
negligence is proven. (Hidayat,

Effects Of The Financial Crisis Of Deutsche Bank 's...
7. Effects of the financial crisis Deutsche bank's involvement with collateralized debt obligations
and residential mortgage–backed securities contributed greatly to the housing bubble that burst in
2008 thus helping launch the great recession. Even though the residential mortgage–backed
securities were only trading in the United States our local economy here is extremely influential all
over the world because of globalization, and the interrelations of the world's economy. The
recession created here by the housing bubble bursting helped to create a global recession. 8.
Regulation Most financial institutions do not hold themselves accountable. However, they do fall
under the regulation of governing bodies. In the United States we have the US securities and
exchange commission (SEC) that regulates trading of commodities and securities that are exchanged
on an open market. In April 2010 the SEC proposed revisions to the application of asset–backed
securities (CDO and RMBS). A few of the most important implementations are that the issuer is
required to file on the SEC website a computer program that provides investors "with a tool to
analyze information about specific loans within the pool of assets. This computer program would
show the effect of the so–called "waterfall" so investors can analyze how the borrowers' loan
payments are distributed to investors in the ABS, how losses or lack of payment on those loans will
be divided among the investors, and when administrative

The Financial Crisis Of 2008
The financial crisis of 2008 was the worst economic disaster since the Great Depression. It caused
the collapse, take over, merging, or buying out of financial services firms and banks such as,
Lehman Brothers, Merill Lynch, Wells Fargo, Goldman Sachs, AIG, Royal Bank of Scotland,
Fannie Mae and Freddie Mac. The "Big Three" credit rating agencies, Standard & Poor's, Moody's,
and Fitch Ratings, were at the helm of the financial crisis of 2008 because they were all found of
wrongly assigning triple– A securities ratings to mortgages and debt assets that were way below
"investment grade" level, which greatly contributed to the growing financial crisis. The ensuing
result of the financial crisis of 2008 was the Great Recession, a period of great economic decline in
America and the rest of the world. The financial crisis and Great Recession were triggered by
subprime mortgages and mortgage backed securities, known as Collaterized Debt Obligations
(CDOs). Mortgage–backed securities are a form of an asset–backed security that deals with different
type of mortgages, while subprime mortgages are mortgages that are loaned out to people with low
credit scores. CDO's are very complex because they are built into different levels, known as
tranches, that consist of various types of assets. The tranches of CDO's are structured on the basis of
risk, with the lowest credit rated tranches holding the highest amount of risk. A demand for
mortgage–backed securities and subprime mortgages

Lehman Brothers : Financial Crisis
Many financial entities experienced financial trouble as the housing bubble burst and mortgage–
backed securities lost significant value, specifically the investment bank Lehman Brothers. The
Lehman Brothers filed for Bankruptcy in September 2008. Before filing for bankruptcy and years
prior to the housing bubble burst, the Lehman Brothers' balance sheet was growing rapidly during
the beginning of 2006. This was mainly due to the many long–term investments financed through
short–term borrowing. These assets included a significant amount of residential and commercial
mortgage–backed securities, the same type of securities that precipitated the 2008 financial crisis.
Although the market for mortgage–backed securities was showing signs of trouble during 2007,
Lehman continued its aggressive growth expecting to benefit from the countercyclical crisis (Hines,
Kreuze, and Langsam 2011). During this time, Lehman took on more risk, ignoring its own risk
models, while also excluding some assets from their risk analyses. These assets became a lot more
difficult to sell without incurring significant losses. Lehman was able to maintain acceptable
leverage ratios through questionable accounting methods, which allowed Lehman to paint a perfect
picture of its leverage ratios and to allegedly mislead investors. A common financing tool that
Lehman frequently used, as well as other investment banks, were repurchase agreements, also
known as repos. A repurchased agreement is a

Pros And Cons Of The Foreclosure Crisis
FINANCIAL MELTDOWN In 2008 the world economy faced its most dangerous crisis since the
Great Depression of the 1930s. The contagion, which began in 2007 when sky–high home prices in
the United States finally turned decisively downward, spread quickly, first to the entire U.S.
financial sector and then to financial markets overseas. It began with mortgage dealers who issued
mortgages with terms unfavorable to borrowers, who were often families that did not qualify for
ordinary home loans. Some of these so–called subprime mortgages carried low "teaser" interest
rates in the early years that ballooned to double–digit rates in later years. Some included prepayment
penalties that made it prohibitively expensive to refinance. These features were ... Show more
content on Helpwriting.net ...
Gates, Kanika Kapur, Seth A. Seabury, Eric Talley, Deregulation has been in trend in emerging
markets or the developing countries ever since the 1990s when these markets began to globalize
their economies and open them up to foreign competition as well as liberalize their economies
internally so that domestic firms are able to compete freely without the heavy hand of the state. This
means that instead of the heavy hand of the state, markets are left to work according to the invisible
hand of the market economy. The complete analysis of the values that support deregulation has been
elaborated in the TABLE–1 given below– VALUES

The View Of Green And Shoven ( 1986 ), Under Phm Model
In the view of Green and Shoven (1986), under PHM model, influencing factors mainly include four
aspects: 1. the refinancing rate R(t) and contract interest rate c, when the refinancing rate is lower
than the contract interest rate , prepayment will be : Thus the prepayment is caused by the difference
between contract interest rate and refinancing rate. 2. The refinancing rate will also cause the
accelerating effect on prepayment. 3. The prepayment also has relationship between mortgage
balance and prepayment rate. As a higher cumulative prepayment, the lower the mortgage balance
will be, which is shown below: Where, measures the mortgage balance at the beginning of period t
if there is prepayment. is the mortgage balance at ... Show more content on Helpwriting.net ...
Refinancing Incentive= 0.31234 – 0.20252* ATN(8.157*[– (Coupon + loan–servicing rate) /
(refinancing rate + refinancing cost) + 1.20761] Where ATN is the arctangent function. ii. Month
Multiplier (i) = ( 0.94, 0.76, 0.74, 0.95, 0.98, 0.92, 0.98, 1.10, 1.18, 1.12, 1.23, 0.98 ) iii. Seasoning
Multiplier (i)= min ( 1, t/30 ) iv. Burnout effect = 0.3+0.7* (mortgage balance at t / mortgage
balance at t=0) CHAPTER–3: MBS Summary 1.0 Introduction of Mortgage–backed Securities and
Causing Risks Generally, mortgage can be divided into fixed–rate mortgage and adjustable–rate
mortgage. From the research of Campbell and Cocco (2003), adjustable–rate mortgage allow the
lenders transfer interest rate risk to borrowers by offering a lower initial mortgage rate. Thus
adjustable–rate mortgage could raise the affordability. However, fixed–rate mortgage makes
borrowers carry less credit risk, especially for those who earn less and buy more expensive houses (
Lin, Prather, Chu and Tsay, 2013). Currently in China, MBS uses floating interest rate as the
mortgage rate. In the following part I will elaborate the adjustable–rate mortgage, which will be
represented by mortgage rate. Assets securitization is the process to transfer non–liquid assets into a
security. Banks and companies provides pool of

A Note On Subprime Loans
Recent mayhem in the American economy attributed to a weakening of business regulation. In the
absence of oversight, lending became a wildcat enterprise. Mortgage brokers easily deceived home
buyers by promoting subprime loans, and then they passed on bundled documents to unwary
investors. These subprime loans were offered at a rate above prime to individuals who did not
qualify for prime rate loans. The loans were made to people who had no other way to access funds,
and little understanding of the mechanics of the loan. A scholarly document on subprime lending by
Hanif NuMan warns, "Servicing prime and alternative– A (not subprime) loans, the automated
underwriting systems were designed to the specifications of banks and financial institutions, and
utilized by loan originators to originate more loans as well as develop a database for the respective
entities" (NuMan). Subprime loans by and large were issued without regard to what would happen if
the borrower could not repay the loan. Subprime loans commonly have adjustable rates that have
monthly payments that will dramatically increase two years after receiving the loan. Subprime loans
were usually classified as those where the borrower had a FICO score below 640. Subprime loans
can be based on credit scores alone. On the homeowner's home loan application subprime loans
would have the option to use a stated income or even no income or asset verification at all. Special
terms usually accompany subprime loans, for example,

Moody’s Credit Ratings and the Subprime Mortgage Meltdown...
Moody's Credit Ratings and the Subprime Mortgage Meltdown
Table of Contents
Introduction.......................................................3
Background........................................................4–10
Analysis............................................................10–12
Conclusion.........................................................12–13
References..........................................................14
In the early–2000s, Moody's, one of the leading credit rating agencies in the world, evaluated
thousands of bonds backed by so–called "subprime" residential mortgages–home loans made to
those with both low incomes and poor credit scores. When housing prices began to fall in 2006, the
value of these bonds disintegrated, and Moody's was compelled to downgrade them significantly. In
late 2008, several commercial banks, investment banks, and mortgage lenders that had been ... Show
Rating agencies also had a strong motivation to compete for market share by catering to their
clients. In 2000, Moody's became an independent, publicly owned firm after being released by its
parent company, Dun & Bradstreet. This placed even more pressure on Moody's managers to
increase revenues and improve their shareholder's returns. (Lawrence, p. 456) From this point on,
we begin to see the credit rating agencies drastically underestimate the risks of mortgage–backed
securities in a selfish attempt to further their own bottom lines. The birth of structured finance came
from new techniques of quantitative analysis used by Wall Street investment banks, and suddenly,
Moody's was not just evaluating corporate, municipal, state and federal government bonds.
Structured finance consisted of combining income–producing assets–everything from conventional
corporate bonds to credit card debt, home mortgages, franchise payments, and auto loans–into pools
and selling shares in the pool to investors. (Lawrence, p. 456)
A structured finance product that became popular in the early 2000s was the residential mortgage–
backed security (RMBS). An RMBS started with a lender–a bank like Washington Mutual or a
mortgage company like Countrywide Financial–that made home loans to individual borrowers. The

lender would then bundle several thousand of these loans and sell them to a Wall Street investment
bank such as Lehman Brothers or Merril Lynch. The Wall

Disadvantages Of Securitization
As securitization seems to be a lucrative way for banks to not only enhance liquidity and diversify
risk but also improves their performance considerable incentive problems occurred during the
turmoil and among the different parties. Those incentive problems led to information asymmetries
and moral hazard among the involved stakeholders .As the Bank/Originator creates reference pool
sells them to the bankruptcy remote trust (such as Fannie Mae or Freddie Mac) Bankruptcy remote
trust buys reference pool and securitizes it sells them to the capital market where potential investors
exists to purchase securities purchase of securities by investors 6 gap between mortgage originators
and investors increases, it reduces the incentives for lenders' to screen mortgage applicants
thoroughly. During the turmoil banks had more and better information about the Mortgage Backed
Securities and their performance value in contrast to third parties as they knew more about the
mortgage applicant and the underlying mortgage loan .As bank incentives are to issue more
mortgage loans and then sell them to bankruptcy remote trusts to securitize them, they did not bear
the risk of the mortgage default and this leads to ... Show more content on Helpwriting.net ...
Therefore, the process of transfer of the receivables from the originator to the SPV involves an
outlay on account of stamp duty, which can make securitization commercially unviable in several
states. If the securitized instrument were issued as evidencing indebtedness, it would be in the form
of a debenture or bond subject to stamp duty. On the other hand, if the instrument is structured as a
Pass Through Certificate (PTC) that merely evidences title to the receivables, then such an
instrument would not attract stamp duty, as it is not an instrument provided for specifically in the
charging

The Background Of 2007-2008 Financial Crisis
Chapter 2. Background
2.1 Introduction
This chapter is about the background of 2007–2008 financial crisis. The 2007–2008 financial crisis
has a huge impact on US banking system and how the banks operate and how they are regulated
after the financial turmoil. This financial crisis started with difficulty of rolling over asset backed
commercial papers in the summer of 2007 due to uncertainty on the liquidity of mortgage backed
securities and questions about the soundness of banks and non–bank financial institutes when
interest rate continued to go up at a faster pace since 2004. In March 2008 the second wave of
liquidity loss occurred after US government decided to bailout Bear Stearns and some commercial
banks, then other financial institutions took it as a warning of financial difficulty of their peers. In
the meantime banks started hoarding cash and reserve instead of lending out to fellow banks and
corporations. The third wave of credit crunch which eventually brought down US financial system
and spread over the globe was Lehman Brother's bankruptcy in August 2008. Many major
commercial banks in US held structured products and commercial papers of Lehman Brother, as a
result, they suffered a great loss as Lehman Brother went into insolvency. This panic of bank
insolvency caused loss of liquidity in both commercial paper market and inter–bank market. Still
banks were reluctant to turn to US government or Federal Reserve as this kind of action might
indicate delicacy of

COMM292 Case Studies
1. University of British Columbia Principles of Organizational Behaviour Girish Ananthanarayana
COMM 329 – Section 202 – Winter Term 2 2014–15 Principles of Organizational Behaviour
Girish Ananthanarayana COMM 329 – Section 202 – Winter Term 2 2014–15 University of British
Columbia Table of Contents Teamwork
Turmoil............................................................................................................................5 Campbell
and Bailyn's Boston Office: Managing the Reorganization.............................................13 The Rise
of President Barack Hussein Obama..............................................................................23 2.
TEAMWORK TURMOIL Tony Marshall, a second–year learning ... Show more content on
Helpwriting.net ...
UVA–OB–0897 UVA–OB–0897 received a dual undergraduate degree in finance and information
systems. Prior to business school, she worked as an analyst for a private foundation. Martin planned
to focus her career on private wealth. Despite the great amount of networking that her chosen career
path required, Martin was very involved in the school community. She spent a lot of time working
on projects for the Black Business Student Forum and the National Association of Women MBAs.
Daren Onyealisi was originally from Nigeria and had been living in the United States for more than
10 years. He graduated from the University of Maryland with a degree in government. Following
his undergraduate degree, Onyealisi worked as a policy research analyst for the District of
Columbia, then changed career paths and worked as a real estate analyst for three years before
attending business school. Onyealisi was a first–generation college graduate and awarded the Robert
Toigo Foundation Fellowship upon entering the MBA program.1 While Onyealisi was not very
involved in the graduate school community, through the Big Brothers Big Sisters of America
organization he was a Big Brother for local youths. Onyealisi planned to target the consulting
industry for his summer internship. Rob Delery was the only scientist in the group and earned a BS
in chemical engineering from Penn State. During his undergraduate years, Delery was a member of
the Penn

Causes of the Financial Crisis of 2008-2009
Causes of The Financial Crisis of 2007–2009
According to our financial textbook " Financial crises are major disruptions in financial markets
characterized by sharp declines in asset prices and firm failures" (Mishkin and Eakins 2012). In
August 2007, defaults in mortgage market for subprime borrowers sent a shudder through the
financial markets, leading to the worst U.S financial crisis since the Great Depression. Alan
Greenspan, chairman of the Fed, described the financial crisis as a "once–in–a–century credit
tsunami". (Mishkin and Eakins 2012). Furthermore, Wall Street firms and commercial banks
suffered losses mounting to billions of dollars. Households and businesses found they had to pay
higher interest rates on their ... Show more content on Helpwriting.net ...
Moreover, many participants contributed to the creation of bad mortgages and the selling of bad
securities, feeling secure they would not be held accountable for their actions. The unregulated
mortgage originators had no personal responsibility if those contracts failed. And so it was for
brokers, realtors, individuals in rating agencies, and other market participants, each maximizing his
or her own gain and passing problems on down the line until the system itself collapsed.(Jinkling
2010). In the end, these unregulated originators were concerned on their commission fee, for
personal gains, not if any of the loans were going to default.
The Originate to Distribute model plays an essential role, on the unregulated mortgage originators
perspective and agenda. Many mortgage brokers and lenders operated under the "originate to
distribute" model whereby they originated loans solely for the purpose of selling them. This model
allowed them to earn loan origination fees without incurring any type of credit risk. Many times this
model, allowed the unregulated originators to take additional fees for collecting loan payments,
escrowing and making payments for property taxes and insurance premiums. Additionally,
unregulated mortgage originators can charge a fee just by receiving customer inquiries. (Bank Law
Committee 2009). According to Mishkin and Eakins, the originate–to–distribute business modal was
exposed to principal–agent problems, in

Financial fraud has been present since before the...
Financial fraud has been present since before the Industrial Revolution, many cases making a long
lasting impact throughout history (Pearson, T. A., & Singleton, T. W. 2008). The 2008 financial
crisis was carried out with a significant amount of pressure throughout many industries, results
including fraudulent activities. Back of America was brought to the forefront of the financial crisis
when mortgaged backed securities collapsed. The US Government sued Bank of America in
connection to defrauding investors, following an ongoing investigation into their direct actions
during this time period. During the ongoing investigation, stemming from the financial crisis, Bank
of America continually tried to prove their innocents and their lack of ... Show more content on
Helpwriting.net ...
Finding themselves in an irreversible situation, Bank of America began to adjust their standings on
their actions during the investigation. Bank of America failed to maintain their innocents numerous
times as evidence brought against them during their trial proved their involvement and avoidance of
proper procedures, when dealing with mortgage investors. The US Government looked to come to a
conclusion with a remedy for the investors involved in the case as well as the individual on the other
side of these fraudulent mortgages. An investigation begun, which looked to hold banks accountable
for their actions during the financial crisis and pervious time periods where their actions led to a
significant collapse. U.S Attorney Tompkins stated he had "made a commitment to the American
people to hold financial institutions accountable for practices that violated the law and wreaked
havoc on the financial system, and my office takes that commitment very seriously. Our
investigation into Bank of America's mortgage and securitizations proactive continues."
(Department of Justice Sues Bank of America for Defrauding Investors in Connection with Sale of
over $850 Million of Residential Mortgage–Backed Securities. 2013, August 6) Similar statements
were made to ensure the American people that steps were being taken to hold bank accountable for
illegal actions that they had made, which led to a massive housing market crisis. Bank of America's
defense stressed

The Problem Of Global Financial Crisis
"Securitisation is the process whereby loans, receivables and other financial assets are pooled
together, with their cash flows or economic values redirected support payments on related
securities." "Securitization first emerged in the 1970s with the sale of securities backed by
residential mortIn the 21st century, economic problems have incurred an increasing number of
people 's attention as the economic develop rapidly, and these problems are usually caused by
human themselves. For instance, the occurrence of Global Financial Crisis (GFC) in 2007 was
induced by people themselves who expect that the economic level could be constantly maintained in
the impractically high position, but there are lots of issues caused by such high level of economy.
Even though the whole world economy is trying to recover from the Global Financial Crisis, but it
still has some propagation effect to other countries until now. There are many factors could cause
the Global Financial Crisis, impractically high economic level is one reason that is mentioned
previously, and another primary reason of Global Financial Crisis is the securitization.
"Securitisation is the process whereby loans, receivables and other financial assets are pooled
together, with their cash flows or economic values redirected support payments on related
securities." "Securitization first emerged in the 1970s with the sale of securities backed by
residential mortgages". (Dov Solomon, 2012) The narrow sense of securitisation

The Problem Of A Housing Crisis
In order to prevent another housing crisis we must implement programs that would teach housing
buyers and potential homeowners how to buy homes wisely because most potential homeowners are
unsophisticated and do not know at what rate to buy homes and set personal guidelines for
mortgages. The complexity of buying homes not only affected homeowners and home buyers but
also confused sophisticated securities investors in that these securities investors sold MBS
(Mortgage Backed Securities) at an excessive price range that the MBS should never had been sold
at. We need legislative reforms that makes home mortgages to be more simplified and transparent
market practices such as underwriting standards, in bonds or other security measures based on these
mortgages. There must be oversight in terms of those originating mortgages and selling them, at an
astronomical price. Unless legislature implement legal parameters that set the structural ground
work for simplification we won't be able to stave off another mortgage crisis. Denmark for instance
has set up simplified system of residential lending and finance with logical costs of capital to
borrowing home buyers. Economically speaking it would be great if the United States government
enact reforms that would bring about lower rates of household investments in home ownership in
this country. Households in the United States have long been overinvested in where they lived. In
previous bygone eras residential lending in the United States

The Collapse Of The Subprime Mortgage Market Causing A...
The collapse of the subprime mortgage market causing a global financial crisis (GFC) in 2007, has
given the concept of securitisation a bad name. Securitisation is the process of conversion of
receivables and cash flow generated from a collection or pool of financial assets into the marketable
securities. Any asset that generates a cash flow can be securitised, which are then sold to capital
market investors. Asset securitisation is the process whereby interests in loans and receivables are
packaged and sold in the form of an asset–backed security (ABS). An ABS is the bond or notes
backed by some financial assets. These assets consist of receivables such as residential and
commercial mortgage loans, automobile loans, and credit card financing. Mortgage–backed
securities (MBS) are bonds that are backed by pools of mortgage loans. Examples include mortgage
papers, house papers, and land and property papers. Thus in–turn, reflective of the underlying assets
in the security are these two terms. Additionally, securitisation is a method of financing assets, to
serve as the main source of payment to investors, it usually depends on cash flow generated from
principle and interest repayments.
Securitisation is one of the most fundamental and complex concepts in the world of finance. The
non–existing industry began in the 1970s when home mortgages were pooled by U.S. government–
backed agencies. Ten years later, financial institutions and businesses from all different aspects used

Case Study Of Tracoma Holding Berhad
Tracoma Holding Berhad (THB) was founded in year 1995 and in based in Shah Alam, Malaysia.
THB, an investment holding company, engages in the manufacture and sale of automotive
components in Malaysia. In terms of operation, it also undertakes general contracting and
engineering works engages in die making and servicing business and provides parts and car design
services. The Group is principally involved in the manufacture and supply of automotive parts and
components. The Group's products are principally sold to the national car manufacturers and
assemblers such as Proton, Perodua, Modenas, Tan Chong Motor Assemblers, Hicom Tech See,
PHN Industry, Volvo and Toyota. Tracoma's infinite experience and good track record as one of the
leading local manufacturers of automotive components, and ... Show more content on
Helpwriting.net ...
In fact, sukuk hold a number of structures which distinguish them from conventional bonds and
from the other sukuk structures in the part of approved sukuk. We can say that sukuk is differ in
product design, product offering and pay off to the investor. Back on the case of trachoma, it can
categorized that sukuk that was applied on Tracoma's is under the asset backed securities. Its
represent the real form of securitisation as they expose the sukuk investors to the real value and risk
of the underlying asset. Under this structure, the investor can only expect the returns from the cash
flows of the underlying asset and there is no right of recourse to the owner of the assets. We can say
that this is because under the asset backed sukuk would require the owner of the asset to sell the
company asset on a 'true–sale' concept to the sukuk investor without having any purchase
undertaking in the case the asset fails to generate the expected income to sukuk investor. Shortly, we
can say that asset– backed sukuk are normally non–recourse sukuk with the underlying asset in–
term of profit and principal

Financial Innovation And Its Effect On The Financial Crisis
Another problem connected to the securitization of loans is the fact that the required off–balance
sheet transactions increase the difficulty of determining a company's true leverage. While off–
balance sheet transactions are not necessarily a bad thing, they do disguise the true debt of a
company in that they make it appear as if the obligation to repay the security investors falls on the
SPV rather than the originator (Pala). Furthermore, a movement of assets to an SPV can result in the
appearance of a reduction of leverage, which may make a company appear more attractive to
investors, or in the case of a bank, allow them to decrease their capital requirements when they have
not in fact de–levered and have simply moved items off of their ... Show more content on
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Thus, the novelty and complexity of these new securities can result in grave misunderstandings
about not only the functionality, but also the riskiness of certain forms of securitization.
Involvement in the 2008 Financial Crisis The 2008 financial crisis is complicated, as are its many
causes, however it is clear that poor understanding and lack of regulation of securitization played a
significant role in bringing about the crisis. The problems began when housing prices started to
decline in 2006, resulting in an unexpected increase in mortgage defaults as homeowners found
themselves owing more on their mortgage than their houses were worth. When mortgages began to
default, the collateral on mortgage–backed securities lost its value, which resulted in the failure of
banks, GSEs and funds that had invested heavily in mortgage backed securities, and another related
offerings (Schulz). These failures scared investors who quickly tried to recoup their investment,
which resulted in essentially a run on the shadow–banking system that had developed around the
issuance of asset–backed securities and related financial innovations–and the rest of the crisis is well
known history that need not be reviewed. Securitization can be blamed in part for the crisis because
were it not for its invention, the

The Federal Reserve Bank And The Great Recession
Explain the Federal Reserve Bank's response to the "Great Recession." Did it work?
Our economy is a machine that is ran by humans. A machine can only be as good as the person who
makes it. This makes our economy susceptible to human error. A couple years ago the United States
faced one of the greatest financial crisis since the Great Depression, which was the Great Recession.
The Great Recession was a severe economic downturn that occurred in 2008 following the burst of
the housing market. The government tried passing bills to see if anything would help it from
becoming another Great Depression. Trying to aid the government was the Federal Reserve. The
Federal Reserve went through a couple strategies in order to help the economy recover. The Federal
Reserve provided three major strategies to start moving the economy in a better direction. The first
strategy was primarily focused on the central bank's role of the lender of last resort. The second
strategy was meant to provide provision of liquidity directly to borrowers and investors in key credit
markets. The last strategy was for the Federal Reserve to expand its open market operations to
support the credit markets still working, as well as trying to push long term interest rates down.
Since time has passed on since the Great Recession it has been a long road. In this essay we will
take a time to reflect on these strategies to see how they helped.
In instances of a financial crisis we want the quickest fix possible. A

Pros And Cons Of The Financial Crisis Of 2007-2009
According to Frederic S. Mishkin (2010) from Columbia University or the National Bureau of
Economic Research. This report analyzes what changes, financial distribution fluent, but quite
simply become full–grown financial crisis. The financial crisis of 2007 to 2009 can be divided into
two different levels. The first, more limited, said from August 2007 to August 2008 arising from the
loss of one, relatively small segment of the US financial system – ie, subprime residential
mortgages. When the French bank BNP Paribas suspended redemption of shares held in money
market funds. Damage in the US housing prices have reached a climax around the year 2005. This
resulted in a decrease in housing prices, mortgage securities collected and sold bonds ... Show more
content on Helpwriting.net ...
It also created a new program to expand the supply of liquidity to the banking institutions continued.
The Federal Reserve is also involved with Bear Stearns, AIG and Lehman brothers in these loans.
After the end of the global crisis, there are three ways for government policies to restore the health
of the financial sector and the economy. One of them is to shrink the balance sheet of the central
bank in which the purchase of asset–backed securities market, long–term mortgage is not dissolved
itself, mortgage–backed securities that have a maturity of ten years or more. That promote the
development of monetary policy inflation because banks are happy to hold large amounts of excess
reserves. The other way is too–big–to–fail, the crisis encouraged to modify the financial regulations.
Too–big–to–fail is a misnomer, a firm can systematically. In this way actually makes things worse
because the bank was merged in ways that create greater banking system and a greater range of
financial firms, may be considered. The new resolution authorities for help because it empowers a
major financial institution systematically to get out of taking risks. The final solution retrenching
fiscal policy as the budget deficit soared after the crisis, the ratio of government debt to GDP is
expected to jump to a very high level in many countries. In

The Pros And Cons Of Securitization
Structured asset securitization is the process through which various types of non–liquid assets such
as residential mortgages, account receivables, auto loans and credit card debt obligations are sold to
a special purpose vehicle ("SPV"), which uses the pool of assets as collateral for the issuance of
securities to investors (Fabozzi, 2013). During an asset securitization issue, one of the central
elements is that repayment depends primarily on the principal and interest cash flows from SPV's
underlying assets, and not on the overall financial strength of the parent company or originator
(Fabozzi, 2013; Riachi & Schwienbacher, 2015; Vink & Thibeault 2007). According to Vink &
Thibeault (2007), securitization issues can be distinguished based on their ... Show more content on
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By achieving "bankruptcy remoteness", firms commit to more efficient investment decisions in
bankruptcy (Ayotte & Gaon, 2010). In addition, this practice together with other credit enhancement
mechanisms, generally allow the new securities issued to obtain higher ratings from credit agencies
– including risk free levels. A number of studies have concluded that securitization has various
positive implications. For instance, some empirical studies show that securitization creates value by
increasing liquidity, reducing credit and improving leverage ratios (Amrose, Lacour–Little, &
Sanders, 2005). According to Riddiough (2011), and it can alleviate market failure, and increase
competition and borrower choice. In their study, Altunbas et al (2009) show how banks' capacity to
supply new loans has been strengthened by the securitization activity. In addition, another advantage
of securing assets is that funding costs can be reduced because the securities issued can match better
the risk return preferences of investors (Aiyar et al,

Managing The Global Financial System
In today's financial world systems, methods have been developing exponentially that reduce risk
and increase the profits of investors who are financially able and willing to commit funds to
investments, becoming part of the global financial system. The methods are sophisticated and
require financial experts who are entrusted to make the right choices in arranging the best
investment plans that will benefit these investors. One of these increasingly popular methods is asset
securitization. Measures in the application of this particular method have been improving, especially
since the market crash of 2008. Structured finance, which is another word for securitization, is an
alternative, non–standard way of raising money by creating ... Show more content on
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For example, in the United States, farm railroad mortgage bonds were some of the earliest forms of
securities. Later, in 1970, the U.S. Department of Housing and Urban Development created the first
modern residential mortgage–backed security, creating the Government National Mortgage
Association (GNMA or Ginnie Mae). Some years later, the model developed in securitization of
mortgage–backed loans was also applied to non–mortgage assets such as automobile loans and
credit card sales by banks. In the 1990s, the life insurance and reinsurance (catastrophe coverage)
markets began using securitization. Securitization in in the reinsurance markets played an important
role after Hurricane Katrina.
As mentioned before, there are certain steps which take advantage of this method of financial
structure. First, if there is a company that wants to obtain financing through securitization, that
company will start by identifying assets that can be used to raise funds. These assets typically
represent rights to payments at future dates and are usually referred to as "receivables." The
company that owns the receivable is usually called the "originator." In this process, the risk that
these payments many not be made on time is an important factor in valuing the receivables. In this
factor, emphasis and confidence is place on the originator, who must reasonably predict the

The Birth Of Structured Products
The birth of structured products:
Structured products were introduced in the mid–1980s. At that time the economy was characterized
by high interest rates and volatility, therefore there was a growing demand for instruments that could
hedge against one or more risks and that could give to the greediest investors exposure to markets
that they could not enter into by themselves.
Because of the recent history and wide variety of structured products, no standard definition exists.
In general they are defined as "financial instruments with cash flows that depend on the value or
performance of underlying assets or embedded derivatives" (Bennett, 2013, p.19). Their three main
characteristics are:
They derive their rating from the quality of the collateral;
Their credit rating is enhanced with respect to the underlying assets thanks to their prioritization
scheme of claims;
They are sold through a separate legal entity. (Fabozzi, Lancaster, Schultz, 2008)
Therefore securitization is the process by which illiquid assets (such as a pool of loans) are
transformed into liquid instruments to be sold on capital markets (debt securities).
The securitization process:
To issue a structured product, a financial institution first collects a large number of assets, usually
credit sensitive, and assembles them in a portfolio, outsourced to a Special Purpose Vehicle (SPV).
The aim of this outsourcing is the isolation of the institution's balance sheet from potential liabilities
and

Essay about Fasb Codification Assignment 1 – Receivables
FASB Codification Assignment 1 – Receivables You are spending your summer working for a local
wholesale furniture company, Beds and Beyond, Inc. The company is considering a proposal from a
local financial institution, Old Faithful Financial, to factor Bed and Beyond's receivables. The
company controller is unfamiliar with the most recent FASB pronouncement that deals with
accounting for the transfer of financial assets and has asked you to do some research. The controller
wants to make sure the arrangement with the financial institution is structured in such a way to
allow the factoring to be accounted for as a sale. Old Faithful has offered to factor all of the
company's receivables on a "without recourse" basis. Old Faithful ... Show more content on
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(ASC 860–10–10–1) 5. Using the FASB Codification, determine what conditions must be met for a
transfer of receivables to be accounted for as a sale. Provide the specific paragraph citation that
Beds and Beyond would rely on in applying that accounting treatment. Conditions that must be met
for a transfer of receivables to be accounted for a sale are as follows: a. Firstly, it should be
considered whether the transferee would be consolidated by the transferor (for implementation
guidance). b. Then it should consider the transferor's continuing involvement in the transferred
financial assets. c. Lastly, it should require the use of judgment that shall consider all arrangements
or agreements made contemporaneously with, or in contemplation of, the transfer, even if they were
not entered into at the time of the transfer. (ASC 860–10–40–4) 6. Assuming that the conditions for
the treatment as a sale are met, prepare Beds and Beyond's journal entry to record the factoring of
$400,000 of receivables. Cash 360,000 Due from Factors 24,000 Loss on sale of receivables 16,000
Accounts (Notes) receivable 400,000 7. An agreement that both entitles and obligates the transferor,
Beds and Beyond, to repurchase or redeem transferred assets from the transferee, Old

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