This article provides a primer on covered bonds, comparing them to mortgage-backed securities (MBS) used in the US. Covered bonds have existed in Europe for over 200 years, issued by banks using pools of loans as collateral. They provide dual recourse for repayment to both the issuing bank and underlying loan pool. The bonds remain on the bank's balance sheet, giving them an incentive to carefully manage the loan pool. This contrasts with US MBS which securitize loans into static pools with no recourse to originators. The article argues covered bonds could offer a safer alternative to the US mortgage market following the financial crisis.
The document summarizes the evolution of the US home mortgage industry from the 1930s to the 2000s and how risky lending practices led to the global financial crisis. It discusses how government interventions created Fannie Mae and Freddie Mac to support the mortgage market after the Great Depression. It then explains how private securitization expanded risky subprime lending that was packaged and sold globally. When the subprime mortgage market collapsed in 2007 due to rising defaults, it spread contagion worldwide and caused a liquidity crisis and losses across the global financial system totaling over $586 billion.
This document discusses how title insurance has evolved to help manage risks for lenders. Specifically:
- Title insurance was traditionally used to minimize errors and manage problems with real estate liens and priority. It has now expanded to also provide insurance for personal property collateral through new "UCC insurance policies".
- UCC insurance works similarly to traditional title insurance but insures against issues with perfecting security interests in personal property. It helps establish the strength of commercial loan assets.
- Risk managers see insurance as a key tool for mitigating operational risks. UCC insurance in particular imposes discipline and reduces legal risks associated with personal property collateral.
The document discusses subprime mortgages and their effect on the Caribbean region. Subprime mortgages carried high interest rates and were issued to borrowers with low credit scores or unclear financial situations. This led to a housing bubble in the US as subprime lending increased. When the housing market declined in 2007, it caused a subprime mortgage crisis that impacted Caribbean trade, tourism, remittances, and foreign investment. The document recommends Caribbean countries analyze other industries, maximize advantages, create jobs, and diversify financial reserves to mitigate similar crises in the future.
The Evolution of Mortgage Brokering in BCBC Notaries
Mortgage brokers in British Columbia have undergone significant changes over the past 50 years and now play an important role in the province's economy. Originally seen as a last resort for difficult clients, brokers now originate 25% of new mortgages and have funded $84 billion in residential mortgages. Regulations in the 1970s established licensing for brokers and later the Mortgage Brokers Association of BC promoted ethics and professional standards. Today, brokers act as trusted advisors and help clients navigate complex regulations to find the best mortgage options.
This document provides a summary of Cameron Cowan's statement on securitization before two Congressional subcommittees. It discusses the history and growth of securitization, including the creation of mortgage-backed securities and asset-backed securities. Securitization involves pooling financial assets and issuing bonds backed by the cash flows from those assets, allowing originators to access funds upfront. This market has grown tremendously since the 1970s and now stands at $6.6 trillion, greatly expanding access to credit for borrowers and investment opportunities for investors.
The document provides an overview of the market crisis as of October 13, 2008. It describes how investment banks, insurers, credit markets, and stock markets have been significantly affected. Major investment banks like Bear Stearns, Lehman Brothers, and Merrill Lynch have collapsed or been acquired. Insurers like AIG have required bailouts. Credit has tightened significantly and stock markets have seen major declines globally. Governments around the world have taken unprecedented steps to stabilize markets through stimulus packages and bailouts. The root causes discussed include excessive risk taking by bankers, loose regulation, public policy decisions, and a shift in consumer mentality around debt and homeownership.
This document discusses credit default swaps (CDS) and their role in the 2008 financial crisis. It begins by introducing CDS and their stated purpose of insuring against bond defaults. However, it notes that CDS were also used speculatively. The document then describes how CDS work and defines an "open position." It lists pros and cons of CDS, including that they allowed off-balance sheet leverage but lack of transparency exacerbated risk. The role of CDS in the crisis is explored, how they amplified systemic risk. The conclusion advocates banning speculative CDS on sovereign debt while standardizing and regulating CDS could increase transparency and limit panic.
The documents discuss the growing US national debt, mortgage securitization processes, and legal issues surrounding foreclosures. They describe how (1) the US national debt has increased by $1.73 billion per day, (2) the mortgage securitization process involves multiple parties and can enable predatory lending, and (3) judges have expressed concerns about whether mortgage lenders actually have the legal right to foreclose in many cases due to issues in securitization processes and documentation.
The document summarizes the evolution of the US home mortgage industry from the 1930s to the 2000s and how risky lending practices led to the global financial crisis. It discusses how government interventions created Fannie Mae and Freddie Mac to support the mortgage market after the Great Depression. It then explains how private securitization expanded risky subprime lending that was packaged and sold globally. When the subprime mortgage market collapsed in 2007 due to rising defaults, it spread contagion worldwide and caused a liquidity crisis and losses across the global financial system totaling over $586 billion.
This document discusses how title insurance has evolved to help manage risks for lenders. Specifically:
- Title insurance was traditionally used to minimize errors and manage problems with real estate liens and priority. It has now expanded to also provide insurance for personal property collateral through new "UCC insurance policies".
- UCC insurance works similarly to traditional title insurance but insures against issues with perfecting security interests in personal property. It helps establish the strength of commercial loan assets.
- Risk managers see insurance as a key tool for mitigating operational risks. UCC insurance in particular imposes discipline and reduces legal risks associated with personal property collateral.
The document discusses subprime mortgages and their effect on the Caribbean region. Subprime mortgages carried high interest rates and were issued to borrowers with low credit scores or unclear financial situations. This led to a housing bubble in the US as subprime lending increased. When the housing market declined in 2007, it caused a subprime mortgage crisis that impacted Caribbean trade, tourism, remittances, and foreign investment. The document recommends Caribbean countries analyze other industries, maximize advantages, create jobs, and diversify financial reserves to mitigate similar crises in the future.
The Evolution of Mortgage Brokering in BCBC Notaries
Mortgage brokers in British Columbia have undergone significant changes over the past 50 years and now play an important role in the province's economy. Originally seen as a last resort for difficult clients, brokers now originate 25% of new mortgages and have funded $84 billion in residential mortgages. Regulations in the 1970s established licensing for brokers and later the Mortgage Brokers Association of BC promoted ethics and professional standards. Today, brokers act as trusted advisors and help clients navigate complex regulations to find the best mortgage options.
This document provides a summary of Cameron Cowan's statement on securitization before two Congressional subcommittees. It discusses the history and growth of securitization, including the creation of mortgage-backed securities and asset-backed securities. Securitization involves pooling financial assets and issuing bonds backed by the cash flows from those assets, allowing originators to access funds upfront. This market has grown tremendously since the 1970s and now stands at $6.6 trillion, greatly expanding access to credit for borrowers and investment opportunities for investors.
The document provides an overview of the market crisis as of October 13, 2008. It describes how investment banks, insurers, credit markets, and stock markets have been significantly affected. Major investment banks like Bear Stearns, Lehman Brothers, and Merrill Lynch have collapsed or been acquired. Insurers like AIG have required bailouts. Credit has tightened significantly and stock markets have seen major declines globally. Governments around the world have taken unprecedented steps to stabilize markets through stimulus packages and bailouts. The root causes discussed include excessive risk taking by bankers, loose regulation, public policy decisions, and a shift in consumer mentality around debt and homeownership.
This document discusses credit default swaps (CDS) and their role in the 2008 financial crisis. It begins by introducing CDS and their stated purpose of insuring against bond defaults. However, it notes that CDS were also used speculatively. The document then describes how CDS work and defines an "open position." It lists pros and cons of CDS, including that they allowed off-balance sheet leverage but lack of transparency exacerbated risk. The role of CDS in the crisis is explored, how they amplified systemic risk. The conclusion advocates banning speculative CDS on sovereign debt while standardizing and regulating CDS could increase transparency and limit panic.
The documents discuss the growing US national debt, mortgage securitization processes, and legal issues surrounding foreclosures. They describe how (1) the US national debt has increased by $1.73 billion per day, (2) the mortgage securitization process involves multiple parties and can enable predatory lending, and (3) judges have expressed concerns about whether mortgage lenders actually have the legal right to foreclose in many cases due to issues in securitization processes and documentation.
This document summarizes part two of a two-part article about the conflict between homeowners and investors during the US housing crisis. It describes how large investors like Pimco and Blackrock began claiming billions in losses from banks like Bank of America due to flawed mortgages. The SEC also launched investigations into the banks' roles in securitization. However, the Obama administration wanted the conflict resolved quickly to help the economy.
Wordpress was used throughout all stages of the project for documentation and presentation. Other technologies used in the research stage included Slideshare and Prezi for presentations, as well as YouTube for inspiration. In the planning stage, cameras were used to film focus groups and locations while YouTube and online tutorials helped with ideas. The production stage utilized a Panasonic HD camera for filming, a stills camera for behind-the-scenes photos, Final Cut Pro for editing, and Photoshop for graphic design work. Evaluation included filming feedback on the project and using Slideshare for reporting.
This document discusses the growing problem of mortgage foreclosures in the United States. It describes how some homeowners who are underwater on their mortgages have strategically defaulted, refusing to make payments. It also discusses how many homeowners are squatting and refusing to leave foreclosed homes, extending the foreclosure process. The document attributes much of the problem to issues with mortgage servicers, including the widespread practice of "robosigning" foreclosure documents without properly verifying information. It suggests the underlying legal issues stem from mismatches between real property and securities laws regarding ownership of mortgages.
This document summarizes the escalating conflict between lenders and borrowers in the U.S. housing market. For years, lenders had been foreclosing on homeowners with little resistance. However, borrowers have now breached the lenders' defenses, aided by state attorneys general investigating improper foreclosure practices like "robo-signing." The conflict has expanded beyond foreclosures to the broader securitization process. Both sides are mobilizing forces and ammunition, signaling that the battle for control of the U.S. housing market has intensified into an all-out "war."
This document discusses how the media product challenges or develops conventions of real media forms.
It analyzes shots from the music video and how they use color, lighting and symbolism to represent changes in mood and relationships over time, developing Todorov's theory of equilibrium.
Some shots feature unrealistic effects like color desaturation or montages, challenging realism but sticking to conventions of abstract music videos. The use of the band's singer creates an authentic narrative link to the performance, aligning with Goodwin's theory on using a "star image".
The document discusses how a media product represents various social groups including class, race, age, gender, and sexuality. It notes that the target audience for disaster films are typically white, young males so the main character was a white, well-spoken male in his 20s-30s to appeal to this audience. Gender roles are also discussed, with the assertion that disaster film audiences view women as sexual objects so a female newsreader was included to appeal to this stereotypical view. The document emphasizes making character choices based on social stereotypes to ensure the intended target audience can relate to the characters.
Posner Advertising {Branding Real Estate}posneradv
This document provides an overview of the capabilities of the POSNER marketing agency. In 3 sentences: POSNER is an award-winning integrated lifestyle marketing agency that has successfully marketed over $20 billion in sales for commercial and residential properties through targeted digital and traditional marketing campaigns. They develop customized strategies for clients across various industries using both traditional and interactive marketing services, and have a proven track record of driving traffic and expediting sales for over 300 branded commercial projects in 25 cities and 5 countries. POSNER prides itself on developing effective marketing strategies through their proprietary "One Signal" process of analyzing clients' unique selling propositions and communicating a consistent message across all marketing channels.
This document discusses how the media product used, developed, or challenged conventions of real media.
It provides several examples from shots in the media product. One shot uses a change from color to black and white to represent the stages of a relationship according to Todorov's theory. Another shot challenges gender stereotypes by showing a female gaze rather than a male gaze. A third shot contradicts expectations by showing boys throwing paint at girls rather than the other way around.
The document also discusses how shots use color correction to represent mood and the effect on surroundings, linking this to conventions of using color. It notes how a shot links to the song lyrics, representing a difficult time in the relationship. Finally, it discusses the
This document analyzes several potential music video channels and magazines for promoting a new music video. It evaluates VH1, Viva, 4Music, Smash Hits, NME, NME Rocks, NME Hits, the NME magazine, Q magazine, and Clash magazine. It determines that NME, NME Hits, Viva, 4Music, and Clash would be good fits as they showcase a variety of genres and independent music that would align with the target audience.
The document discusses the origins of the financial crisis. It identifies several key factors:
1) A housing price bubble formed from the mid-1990s to 2006 as home prices increased each year, outpacing household income growth and moving out of line with economic fundamentals. This fueled expectations of continued price increases.
2) Subprime lending expanded rapidly after 2000, helped inflate the housing bubble, and enabled many new subprime borrowers to access credit. Innovative mortgage products like ARMs contributed.
3) Financial innovations like securitization, CDOs, and credit default swaps masked risk and facilitated the subprime lending boom by channeling funds to subprime mortgages. However
NYU Economics Research Paper (Independent Study) - Fall 2010jsmar16
First of two research papers on issues involving the current economic downturn that I wrote during my senior year at NYU in collaboration with NYU professor, (both are pending professional publication).
First of two research papers on issues involving the current economic downturn that I wrote during my senior year at NYU in collaboration with NYU professor, (both are pending professional publication).
The document discusses the role of institutional investors in propagating the financial crisis of 2007-2008. It states that institutional investors like mutual funds, pension funds, hedge funds, and insurance companies contributed to the crisis through their large and professional investments. While institutional investors enjoy benefits due to the scale of their investments, their actions also amplified the crisis. The document cites the example of hedge fund Magnetar Capital and insurance company AIG as institutional investors that played a role in the crisis.
The document analyzes the debt crisis facing the Eurozone and presents four potential scenarios for how the crisis could unfold over the next 3 years: 1) a return to normal growth and stability, 2) high inflation leading to currency reforms, 3) an uncontrolled economic reset, or 4) a controlled reset through reforms and debt restructuring that allows for recovery. It argues current policies of taking on new debt to pay old debts will fail to solve the problem and more decisive action is needed to reduce debt burdens in a sustainable way.
This document summarizes the key events that led to the subprime mortgage crisis and current financial crisis. It describes how subprime mortgages were originated and then securitized into mortgage-backed securities (MBS) and collateralized debt obligations (CDOs). These securities became highly complex and opaque. When the housing market declined, many subprime borrowers defaulted, causing the value of MBS and CDOs to plummet. This impaired the balance sheets of financial institutions and froze credit markets. The document outlines various experts' proposals to remedy the crisis, including government purchases of toxic assets, capital injections into banks, and establishing funds to remove bad assets from banks and resolve insolvent institutions.
The document provides a summary of the key causes and events of the global financial crisis that began in 2007-2008. It discusses how a decline in lending standards and rising housing prices in the US encouraged many homeowners to take on difficult mortgages. Once housing prices dropped and interest rates rose, defaults and foreclosures increased dramatically. US banks had repackaged risky mortgages into complex financial products that were distributed globally, spreading risk throughout the financial system and making the effects of the crisis global in scale. The document outlines several major events such as the failures of Bear Stearns and Lehman Brothers that accelerated the crisis.
t.l A ir I F lrt i; current Multinational Financial challenges.docxmattinsonjanel
1) Structured investment vehicles (SIVs) played a role in the financial crisis by borrowing short-term through commercial paper and investing in long-term assets like mortgage-backed securities, leaving them vulnerable when the commercial paper market seized up.
2) Collateralized debt obligations (CDOs) contributed to the crisis by pooling and repackaging risky mortgage loans and other debt into complex securities whose risks were underestimated.
3) The credit crisis evolved into a global recession as lending, borrowing, and investing declined amid uncertainty about banks' solvency and asset values.
A collateralized debt obligation (CDO) pools together cash-generating assets like mortgages, bonds, and loans, and repackages them into tranches of varying risk levels that are sold to investors. The senior tranches have first claim on collateral in the event of default, making them safer with lower yields, while junior tranches offer higher yields to compensate for their higher risk. CDOs grew rapidly in the 2000s as a way to distribute risk, with global issuance peaking at $503 billion in 2007, though the market declined after the 2008 financial crisis.
1) Merchant banking involves private equity investments by financial institutions. It has historically been an important activity for both commercial and investment banks.
2) The document discusses the history and evolution of the private equity market in the US. It has grown significantly over the past few decades, reaching $400 billion in 1999.
3) The document outlines the typical structures commercial banks have used to engage in merchant banking, including small business investment corporations and 5% subsidiaries. Recent legislation has expanded permissible merchant banking activities.
PPT on 2008. US SUB PRIME CRISIS-2.pptxkthegreatks
The document discusses the microeconomic causes and variables that contributed to the 2007-2008 global financial crisis, including poor lending standards, credit derivatives, and the originate-and-distribute model that reduced screening of borrowers. It also examines the impact on the US and global economies, including job losses, declining wealth, and slow recovery for many. Government responses including the Troubled Asset Relief Program aimed to stabilize financial markets and restore confidence.
Irish Political Economy (YWN), class 4: Credit and DebtConor McCabe
The document discusses several topics related to debt and the banking system:
1. It explains that banks create credit and issue money through lending, which is the defining feature of capitalism according to some economists.
2. It states that credit creation by banks has not just responded to production needs but also speculative demands, fueling inflation.
3. As governments received funds from uncontrolled credit creation, citizens will eventually have to pay for guaranteeing the monetary system.
Mortgage fraud is one of the fastest growing crimes in the United States, with three categories including fraud for housing, fraud for profit, and fraud for criminal enterprise. Fraud for profit schemes involve multiple industry professionals inflating property values and creating fake credit profiles for profit. Measuring risk in the housing market is difficult and often leads to underestimating risk in booms and overestimating it in recessions, contributing to issues.
This document summarizes part two of a two-part article about the conflict between homeowners and investors during the US housing crisis. It describes how large investors like Pimco and Blackrock began claiming billions in losses from banks like Bank of America due to flawed mortgages. The SEC also launched investigations into the banks' roles in securitization. However, the Obama administration wanted the conflict resolved quickly to help the economy.
Wordpress was used throughout all stages of the project for documentation and presentation. Other technologies used in the research stage included Slideshare and Prezi for presentations, as well as YouTube for inspiration. In the planning stage, cameras were used to film focus groups and locations while YouTube and online tutorials helped with ideas. The production stage utilized a Panasonic HD camera for filming, a stills camera for behind-the-scenes photos, Final Cut Pro for editing, and Photoshop for graphic design work. Evaluation included filming feedback on the project and using Slideshare for reporting.
This document discusses the growing problem of mortgage foreclosures in the United States. It describes how some homeowners who are underwater on their mortgages have strategically defaulted, refusing to make payments. It also discusses how many homeowners are squatting and refusing to leave foreclosed homes, extending the foreclosure process. The document attributes much of the problem to issues with mortgage servicers, including the widespread practice of "robosigning" foreclosure documents without properly verifying information. It suggests the underlying legal issues stem from mismatches between real property and securities laws regarding ownership of mortgages.
This document summarizes the escalating conflict between lenders and borrowers in the U.S. housing market. For years, lenders had been foreclosing on homeowners with little resistance. However, borrowers have now breached the lenders' defenses, aided by state attorneys general investigating improper foreclosure practices like "robo-signing." The conflict has expanded beyond foreclosures to the broader securitization process. Both sides are mobilizing forces and ammunition, signaling that the battle for control of the U.S. housing market has intensified into an all-out "war."
This document discusses how the media product challenges or develops conventions of real media forms.
It analyzes shots from the music video and how they use color, lighting and symbolism to represent changes in mood and relationships over time, developing Todorov's theory of equilibrium.
Some shots feature unrealistic effects like color desaturation or montages, challenging realism but sticking to conventions of abstract music videos. The use of the band's singer creates an authentic narrative link to the performance, aligning with Goodwin's theory on using a "star image".
The document discusses how a media product represents various social groups including class, race, age, gender, and sexuality. It notes that the target audience for disaster films are typically white, young males so the main character was a white, well-spoken male in his 20s-30s to appeal to this audience. Gender roles are also discussed, with the assertion that disaster film audiences view women as sexual objects so a female newsreader was included to appeal to this stereotypical view. The document emphasizes making character choices based on social stereotypes to ensure the intended target audience can relate to the characters.
Posner Advertising {Branding Real Estate}posneradv
This document provides an overview of the capabilities of the POSNER marketing agency. In 3 sentences: POSNER is an award-winning integrated lifestyle marketing agency that has successfully marketed over $20 billion in sales for commercial and residential properties through targeted digital and traditional marketing campaigns. They develop customized strategies for clients across various industries using both traditional and interactive marketing services, and have a proven track record of driving traffic and expediting sales for over 300 branded commercial projects in 25 cities and 5 countries. POSNER prides itself on developing effective marketing strategies through their proprietary "One Signal" process of analyzing clients' unique selling propositions and communicating a consistent message across all marketing channels.
This document discusses how the media product used, developed, or challenged conventions of real media.
It provides several examples from shots in the media product. One shot uses a change from color to black and white to represent the stages of a relationship according to Todorov's theory. Another shot challenges gender stereotypes by showing a female gaze rather than a male gaze. A third shot contradicts expectations by showing boys throwing paint at girls rather than the other way around.
The document also discusses how shots use color correction to represent mood and the effect on surroundings, linking this to conventions of using color. It notes how a shot links to the song lyrics, representing a difficult time in the relationship. Finally, it discusses the
This document analyzes several potential music video channels and magazines for promoting a new music video. It evaluates VH1, Viva, 4Music, Smash Hits, NME, NME Rocks, NME Hits, the NME magazine, Q magazine, and Clash magazine. It determines that NME, NME Hits, Viva, 4Music, and Clash would be good fits as they showcase a variety of genres and independent music that would align with the target audience.
The document discusses the origins of the financial crisis. It identifies several key factors:
1) A housing price bubble formed from the mid-1990s to 2006 as home prices increased each year, outpacing household income growth and moving out of line with economic fundamentals. This fueled expectations of continued price increases.
2) Subprime lending expanded rapidly after 2000, helped inflate the housing bubble, and enabled many new subprime borrowers to access credit. Innovative mortgage products like ARMs contributed.
3) Financial innovations like securitization, CDOs, and credit default swaps masked risk and facilitated the subprime lending boom by channeling funds to subprime mortgages. However
NYU Economics Research Paper (Independent Study) - Fall 2010jsmar16
First of two research papers on issues involving the current economic downturn that I wrote during my senior year at NYU in collaboration with NYU professor, (both are pending professional publication).
First of two research papers on issues involving the current economic downturn that I wrote during my senior year at NYU in collaboration with NYU professor, (both are pending professional publication).
The document discusses the role of institutional investors in propagating the financial crisis of 2007-2008. It states that institutional investors like mutual funds, pension funds, hedge funds, and insurance companies contributed to the crisis through their large and professional investments. While institutional investors enjoy benefits due to the scale of their investments, their actions also amplified the crisis. The document cites the example of hedge fund Magnetar Capital and insurance company AIG as institutional investors that played a role in the crisis.
The document analyzes the debt crisis facing the Eurozone and presents four potential scenarios for how the crisis could unfold over the next 3 years: 1) a return to normal growth and stability, 2) high inflation leading to currency reforms, 3) an uncontrolled economic reset, or 4) a controlled reset through reforms and debt restructuring that allows for recovery. It argues current policies of taking on new debt to pay old debts will fail to solve the problem and more decisive action is needed to reduce debt burdens in a sustainable way.
This document summarizes the key events that led to the subprime mortgage crisis and current financial crisis. It describes how subprime mortgages were originated and then securitized into mortgage-backed securities (MBS) and collateralized debt obligations (CDOs). These securities became highly complex and opaque. When the housing market declined, many subprime borrowers defaulted, causing the value of MBS and CDOs to plummet. This impaired the balance sheets of financial institutions and froze credit markets. The document outlines various experts' proposals to remedy the crisis, including government purchases of toxic assets, capital injections into banks, and establishing funds to remove bad assets from banks and resolve insolvent institutions.
The document provides a summary of the key causes and events of the global financial crisis that began in 2007-2008. It discusses how a decline in lending standards and rising housing prices in the US encouraged many homeowners to take on difficult mortgages. Once housing prices dropped and interest rates rose, defaults and foreclosures increased dramatically. US banks had repackaged risky mortgages into complex financial products that were distributed globally, spreading risk throughout the financial system and making the effects of the crisis global in scale. The document outlines several major events such as the failures of Bear Stearns and Lehman Brothers that accelerated the crisis.
t.l A ir I F lrt i; current Multinational Financial challenges.docxmattinsonjanel
1) Structured investment vehicles (SIVs) played a role in the financial crisis by borrowing short-term through commercial paper and investing in long-term assets like mortgage-backed securities, leaving them vulnerable when the commercial paper market seized up.
2) Collateralized debt obligations (CDOs) contributed to the crisis by pooling and repackaging risky mortgage loans and other debt into complex securities whose risks were underestimated.
3) The credit crisis evolved into a global recession as lending, borrowing, and investing declined amid uncertainty about banks' solvency and asset values.
A collateralized debt obligation (CDO) pools together cash-generating assets like mortgages, bonds, and loans, and repackages them into tranches of varying risk levels that are sold to investors. The senior tranches have first claim on collateral in the event of default, making them safer with lower yields, while junior tranches offer higher yields to compensate for their higher risk. CDOs grew rapidly in the 2000s as a way to distribute risk, with global issuance peaking at $503 billion in 2007, though the market declined after the 2008 financial crisis.
1) Merchant banking involves private equity investments by financial institutions. It has historically been an important activity for both commercial and investment banks.
2) The document discusses the history and evolution of the private equity market in the US. It has grown significantly over the past few decades, reaching $400 billion in 1999.
3) The document outlines the typical structures commercial banks have used to engage in merchant banking, including small business investment corporations and 5% subsidiaries. Recent legislation has expanded permissible merchant banking activities.
PPT on 2008. US SUB PRIME CRISIS-2.pptxkthegreatks
The document discusses the microeconomic causes and variables that contributed to the 2007-2008 global financial crisis, including poor lending standards, credit derivatives, and the originate-and-distribute model that reduced screening of borrowers. It also examines the impact on the US and global economies, including job losses, declining wealth, and slow recovery for many. Government responses including the Troubled Asset Relief Program aimed to stabilize financial markets and restore confidence.
Irish Political Economy (YWN), class 4: Credit and DebtConor McCabe
The document discusses several topics related to debt and the banking system:
1. It explains that banks create credit and issue money through lending, which is the defining feature of capitalism according to some economists.
2. It states that credit creation by banks has not just responded to production needs but also speculative demands, fueling inflation.
3. As governments received funds from uncontrolled credit creation, citizens will eventually have to pay for guaranteeing the monetary system.
Mortgage fraud is one of the fastest growing crimes in the United States, with three categories including fraud for housing, fraud for profit, and fraud for criminal enterprise. Fraud for profit schemes involve multiple industry professionals inflating property values and creating fake credit profiles for profit. Measuring risk in the housing market is difficult and often leads to underestimating risk in booms and overestimating it in recessions, contributing to issues.
The document discusses the causes of the subprime mortgage crisis and how it spread through the financial system. It describes how low interest rates led to overinvestment in the housing market. Mortgage lenders lowered standards and offered risky loans. When housing prices declined and interest rates rose, there was a wave of defaults. Financial institutions had transferred risk through securities and derivatives, spreading losses throughout the global financial system and causing the near-collapse of some major firms.
The document discusses deposit insurance schemes that have been established in many countries around the world. It notes that over 50% of countries have established such schemes to increase depositor confidence and stability in the banking system by guaranteeing deposits. However, deposit insurance also creates moral hazard by removing depositor discipline over bank risk-taking. The document analyzes differences in features of deposit insurance schemes, such as coverage limits, funding structures, use of risk-adjusted premiums, and membership types. Effective bank regulation and supervision are needed to mitigate the moral hazard created by deposit insurance.
The major credit rating agencies, Moody's, Standard & Poors, and Fitch, bear a heavy burden of responsibility for the financial meltdown. It was their seal of approval that enabled Wall Street to develop a multi-trillion-dollar market for bonds resting on a foundation of tricky loans and bubbly housing prices. Institutional investors around the world were seduced into buying these high-risk securities by credit ratings that made them out to be as safe as the most conventional corporate and municipal bonds.
Michael Burry discovers that the US housing market is on the verge of collapse in the early 2000s due to risky subprime mortgages being bundled into bonds. He buys credit default swaps to bet that the mortgage-backed securities will fail. Others like Greg Lippmann, Steve Eisman of FrontPoint Partners, and Charles Ledley and Jamie Mai of Cornwall Capital also buy swaps. In 2007, the housing bubble bursts as subprime mortgages default, causing major financial firms to collapse until the US government intervenes with a bailout.
The article discusses several topics:
1) It provides an overview of the concierge services that Northland Wealth Management provides to clients, ranging from assistance with large projects like cottage construction to smaller tasks like arranging travel.
2) It introduces Grant Dawes, an associate at Northland who joined after diverse international experience, including working for a Middle Eastern family business.
3) It examines the shadow banking industry, how it provides an alternative to traditional bank lending, and how Northland accesses these types of investments for clients.
1. A BNA, INC.
REAL ESTATE !
LAW & INDUSTRY
VOL. 3, NO. 11 REPORT JUNE 1, 2010
COVERED BONDS
Since the securitization markets collapsed in 2008, many have asked if covered bonds
might offer a suitable alternative to commercial mortgage-backed securities (CMBS) and
other kinds of asset-backed securities. Introduced more than two centuries ago, the bonds
have proven safe and reliable financial instruments in Europe, but so far have not caught
on in the United States. Here the author provides a ‘‘primer’’ on covered bonds—their his-
tory, how they work, their key characteristics. He compares them to U.S. securitization and
explores the prospects for new policies that could help them stake their claim in the West.
Westward Ho: Covered Bonds Make Their Way to the Land of Opportunity
BY RICHARD ZAHM nancial conduct in the first decade of the 21st century
H
bore an uncanny resemblance to behavior seen in the
istorians looking back on our era a hundred years
last half of the 19th century.
from now might puzzle over our mortgage finance
predicament. Because, in many ways, our country ‘‘The Great Recession of 2008-2011,’’ they could
has traveled this trail before. With the benefit of hind- write, ‘‘marked the end of The Mortgage Frontier. Tra-
sight, our descendents might be able to see that our fi- ditional financing models were finally adopted that pro-
vided the mechanisms needed by borrowers, investors,
and lenders, providing just enough stability to allow a
Richard Zahm is a direct lender and portfolio gradual recovery.’’
manager based in Connecticut and Califor- One of our conceits is that securitization is a brain-
nia. He may be reached at richzahm@ child of our generation. It’s not. Securitization in one
gmail.com. form or another was tried—and abandoned—six times
between 1870 and 1940. The results differed from our
COPYRIGHT 2010 BY THE BUREAU OF NATIONAL AFFAIRS, INC. ISSN 1944-9453
2. 2
recent iteration only in the magnitude of our latest de- and France (obligations foncieres), covered bonds have
spoilment. financed everything from public works projects to re-
Financing principles have been developed over time. building cities. They’re common in more than 25 devel-
Investors really only require three things: oped countries across Europe. They work.
s Careful underwriting and adequate assurances of In contrast to the virtual vaporization of securitiza-
safety; tion since 2007 in the United States, covered bond origi-
s An ability to manage risks correlated to varying nations in the European Union are tracking only
interest rates, prepayments and credit quality; and slightly below record figures set in the first quarter of
s Transparency of underlying assets. 2006.
These principles were forgotten. Covered pools offer ‘‘dual recourse’’ for payment.
Bondholders have recourse for payment of principal
Mortgage Finance and the Open Range. Mortgage origi- and interest from two sources. The first is the issuer of
nators, rating agencies, securities issuers, government the bond—generally, a financial institution. In the event
regulators—all have their antecedents. They bear a that the issuer defaults, recourse is to the assets in the
striking resemblance to the financiers, fortune seekers, cover pool itself. The assets span the financial spec-
and feckless administrations in our history. Seeing only trum: residential and commercial mortgages, student
boundless opportunity—and immediate need—the fo- loans, auto leases, public debt.
cus was on plunder, now, consequences be damned. They’re also ‘‘dynamic.’’ Unlike mortgage-backed se-
From hydraulic placer mining, blasting rock and de- curities, the pool is actively managed to maintain the
stroying rivers, to forest clear cutting, to the destruction pool’s value. As assets within a pool mature or decline
of entire species (not to mention Native Americans), in value, they are replaced and augmented by new as-
we’ve got a well-established pattern of shortsighted- sets of equal or better quality. The focus is on over-
ness. collateralization.
Mortgage finance in the late 20th century was noth- The dynamism comes from the cover pool remaining
ing particularly new. But what was new was the global on the issuer’s balance sheet. The pool remains sepa-
reach of a system that seemed to be expressly designed rate from the issuer’s other assets. It’s to be used exclu-
to disregard outlooks, expectations, obligations, and es- sively for the benefit of the covered bond holders.
tablished investment and lending practices developed Because issuers are wedded to the pools they create,
over hundreds of years. common sense kicks in. The assets aren’t tucked away
Lenders were able to originate loans free from the in special-purpose vehicles. Issuers are responsible for
worry of having to carry them on their balance sheets. making payments on the bonds regardless of the per-
Investors swallowed the fiction that they were secure, formance of the assets. Assets are monitored and up-
that a handful of individual defaults would have a mini- dated each month. Underwriting standards become
mal impact on the value of a portfolio. And borrowers tighter. Lenders emphasize quality control and due dili-
would enjoy lower interest rates. gence.
We’re suffering through the effect of that particular Conflicts of interest issues are minimized by checks
medicine show. And as we stagger around ghost towns and balances created by the ongoing participation of in-
(literally), as we survey the damage inflicted by the dependent trustees, asset monitors, and master ser-
shoot-em-up mortgage cowboys, we might be seeing vicers. Covered bonds are transparent by nature, pro-
salvation coming over the horizon. Covered bonds. viding loan-level details that are in sharp contrast to
weighted-average pools inherent in mortgage-backed
Frederick the Great’s Legacy. Covered bonds are debt securities structures.
obligations that are secured or ‘‘covered’’ by a pool of
The key advantage of covered bond programs is that
assets. Reputedly fathered by Frederick the Great of
borrower and investor interests come before those of
Prussia in 1789 as a means of paying for the Seven
the lender or issuer—the reverse of our current circum-
Years War, they’ve stood the test of time. Covered
stances.
bonds have weathered multiple wars and revolutions,
If financing structures have characteristics (safe,
and have survived financial meltdowns, including ev-
volatile, toxic), they can also have personalities. Cov-
erything from depressions and stagflation to massive
ered bonds are stolid, staid, open-handed, dependable.
hyperinflation.
They’re the Ingalls family of Little House on the Prairie,
They’ve expanded across nations and across a host of
rolling by the card sharks and cancan girls smoking in
legal, economic, and religious systems, with only slight
the Mortgage Backed Saloon.
variations. From Germany (pfandbrief), Denmark (re-
alkreditobligateur), Spain (Cedula Hipocateclarias), Comparison to Mortgage-Backed Securities.
Covered Bonds MBS
Pool Structure Skin in the game. Dual recourse. ‘‘Originate to distribute.’’ Mul-
Collateralized by pool and issu- tiple classes and tranches, with
er’s assets. Single class. varying credit risks.
Pool Management Dynamic management with is- Investors bear risk of asset de-
suer responsible for payment. terioration within static pool. No
Asset substitution required. recourse to originator.
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3. 3
Balance Sheet On balance sheet. Pool assets Off balance sheet, packaged,
segregated for exclusive benefit sold.
of investors.
Payment Sources Bank cash flows. Proceeds of assets in pool.
Principal Return Bullet at maturity. Returned as assets mature.
Prepayment Risk Reduced due to asset substitu- Passed through to investors.
tion.
Disclosure & Governance Assets monitored by indepen- Commingled roles, weighted av-
dent trustees. erage pool data.
Compliance Review Legal, regulatory & trust: heavy. Legal: heavy. Asset monitoring
& trust compliance: light.
Wagon Trains Forming. ‘‘The curious element,’’ histo- also were made in the Senate to attach an amendment
rians might write, ‘‘is that covered bonds were recog- to the financial reform bill. H.R. 4884 proposes a com-
nized as providing a viable solution for the financing pliance framework for U.S. covered bonds.
mess they’d made. But they were slow on the uptake, The proposal is straightforward, focusing on eligible
perhaps focused on transitory issues, like oil spills and assets and their quality requirements; the size of cover
the future of the ill-conceived government-sponsored pools relative to bonds and the calculation of over-
enterprises. . .’’ collateralization; investor rights and the management
Despite their lengthy track record in Europe, only of the pool in the event of default.
two covered bond issuances have been made in the The measure was not included in either the House or
United States, one by Washington Mutual (2006) and Senate versions of the reform bill. There is conjecture,
one by Bank of America (2007). however, that it could be included in the compromise
The covered bond market in America doesn’t lack for bill being drafted by the House-Senate conference com-
supporters—Congress, the Securities and Exchange mittee: Garret could me a member.
Commission (SEC), and the Federal Deposit Insurance Asset classes would include residential and commer-
Corporation (FDIC) to the National Association of Real- cial mortgage loans; auto loans and leases, student and
tors (NAR), the Commercial Real Estate Finance Coun- small business loans; credit card receivables and public
cil (CREFC), and the Securities Industry and Financial sector debt. Cover pools would be made up of single as-
Markets Association (SIFMA)—everyone seems to be in set classes.
favor of covered bonds. Covered bond legislation is a crucial component, but
What the market lacks is regulatory guidance. It cur- it’s interrelated with other broad issues, and all of these
rently depends entirely on contractual provisions, giv- are in motion: the future roles (and fates) of Freddie
ing rise to an interesting banding together of financial Mac and Fannie Mae, for example, as well as the Fed-
institutions. Like sodbusters grouping their wagons for eral Home Loan Bank (FHLB) system.
safety before heading west, Bank of America, Citigroup, The most apparent covered bond doomsayers appear
J.P. Morgan Chase, and Wells Fargo are creating stan- to be rating agencies. Moody’s Investors Service takes a
dardized documentation for covered bond offerings. market-driven approach for collateral, while Standard
Their goal is to make it easier for investors to analyze & Poor’s and Fitch Inc. focus more on bondholder re-
offerings. The first three lenders would also be prospec- covery in the event of issuer default. Despite the agen-
tive underwriters. cies’ experience in covered bond ratings in Europe, the
freshness of the legislation and the newness of the U.S.
market is somehow off-putting. (Looking forward, cov-
Like sodbusters grouping their wagons for safety ered bond ratings would appear to be the least of the
agencies’ worries . . . )
before heading west, Bank of America, Citigroup, European commentators suggest various improve-
ments for the legislation, including stricter eligibility re-
J.P. Morgan Chase, and Wells Fargo are creating quirements; more detailed asset management match-
ing, monitoring, and management; and greater clarifi-
standardized documentation for covered bond cation of results stemming from various default
scenarios. We’ll get there.
offerings. Their goal is to make it easier for
Looking Under the Canvas. A critical element for cov-
investors to analyze offerings. The first three ered bonds is the dynamic nature of the pools. The as-
sets contained in the pools are providing collateral not
lenders would also be prospective underwriters. direct income. As a result, the nature and value of the
assets are under constant scrutiny. As assets are re-
tired, they’re replaced with new collateral of the same
or superior quality.
Reps. Scott Garrett (R-N.J.), Spencer Bachus (R- This necessitates transparency and loan-level infor-
Ala.), and Paul Kanjorski (D-Pa.) March 18 introduced mation, something lacking in the MBS world. Investor
The United States Covered Bond Act of 2010 (H.R. Reporting Packets (IRPs) provided by servicers have
4884) as a standalone bill (3 REAL 181, 3/23/10). Efforts been the bane of accountants. In April, the SEC pro-
REAL ESTATE LAW & INDUSTRY REPORT ISSN 1944-9453 BNA 6-1-10
4. 4
posed disclosure and reporting requirements descend- whisky, then used as a barter currency. But when stan-
ing to the loan level, a move the industry described as dards can be set, matters can move forward.
‘‘tectonic,’’ a ‘‘tsunami.’’ Covered bonds in Europe are regulated by individual
Reports would include a description of the impact of countries and by the EU. Minimum credit standards are
waterfalls and a ‘‘shelf-eligibility’’ standard would be established and specifics are set out as to the availabil-
established. This entails issuer certification that the as- ity of cover pool assets in the event of cover pool de-
sets could reasonably produce cash flows and that un- fault. Around 90 percent of European covered bond is-
derwriting standards were sound. suance is rated Aaa. For most of their existence, they
Frederick the Great would be proud. carried no ratings.
Stringing Fence. The mortgage stampede of the past The primary rating drivers are the strength of the
10 years is behind us, leaving a disheveled, milling herd sponsor bank and the quality of the cover pool. Bank
of investors, lenders, and borrowers foraging for suste- strength factors include the degree of involvement in
nance. The pause in the real estate market allows the servicing, cash management, and hedging. Pool quality
covered bond regime to usher in a structure that brings is determined in basically the same manner as
distinct advantages compared to securitization. mortgage-backed securities. Refinancing risk variables
In a time of exceptional unease, covered bonds offer include asset type; credit quality of the assets; strength/
higher credit ratings, owing to tighter regulatory con- liquidity of the market; and time available for refinance.
trols, higher quality of collateral, and dual recourse. Be- Covered bonds could provide an interesting long-
cause credit ratings are higher, funding costs are lower. term benefit: they could de-emphasize the power of
Reasons: interest payments are less and issuers enjoy Fannie Mae and Freddie Mac and provide a path for the
greater pricing power owing to superior liquidity. shrinkage of the their importance.
Financing better coincides with the expected lives of
the assets. Covered bonds have maturities of seven Eureka. Speculation of the form CMBS 2.0 will take
years or more, compared to medium-term notes that points directly towards attributes long contained by
only extend for three to five years. covered bonds. Securitization ‘‘structurally made
sense.’’ It ‘‘just got ahead of itself.’’ Improvements in-
Sheriffs and Mounties. The most lasting legacy of the clude: more thorough underwriting, greater transpar-
financial meltdown of the ‘‘Great Recession’’ could be
ency, simpler deal structure, an outside forum oversee-
the altered awareness of regulation and the roles—and
ing rating agencies, and issuers retaining a stake in the
limitations—of government trying to ride herd over the
assets and holding more first loss risk.
vast range of real estate finance. Can tight controls be
developed and implemented without strangling the As Native Americans might have asked early explor-
market? ers: ‘‘We’ve lived here for years. You’re discovering
In the Old West and Canada, the sheer size of territo- what?’’
ries mandated tight control, specifically applied when Using 221 years of European experience as a guide,
feasible. Quality and conformity to common specifica- covered bonds could provide the ultimate private mar-
tions was uncommon, except for gold and, perhaps, ket solution.
6-1-10 COPYRIGHT 2010 BY THE BUREAU OF NATIONAL AFFAIRS, INC. REAL ISSN 1944-9453