AFTER THE BAILOUT: REGULATING SYSTEMIC MORAL HAZARD* Karl S. Okamoto ** How do we prevent excessive risk taking in the financial markets? This Essay offers a strategy for regulating financial markets to better prevent the kind of disaster we saw during the Financial Crisis of 2008. By developing a model of risk-manager decisionmaking, this Essay illustrates how even “good people” acting in utterly rational and expected ways brought us into economic turmoil. The assertion of this Essay is that
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Stearns), two financial conglomerates (Citigroup, JPMorgan Chase), three securitized insurance companies (AIG,MBIA, AMBAC) and the three rating agencies (Moody’s, Standard & Poors, Fitch). Investment banks bundled mortgages with other loans and debts into collateralized debt obligations (CDOs), which they sold to investors. Rating agencies gave many CDOs AAA ratings. Subprime loans led to predatory lending. Many home owners were given loans they could never repay. Part II: The Bubble (2001–2007)
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9-104-060 REV: MARCH 28, 2005 DAVID F. HAWKINS Bond Ratings 1 The two major bond-rating services are Moody’s Investors Service, Inc., and Standard & Poor’s Corporation. These two companies rate public and private corporate bond issues, commercial paper, preferred stock, and some large debt offerings of foreign companies and governments. Other rating agencies are Duff and Phelps, and Fitch’s. The information provided by the rating agencies is one of the factors that the marketplace uses to
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H.Keiding: Economics of Banking (Prel.version:September 2013) Chapter 18, page 1 Chapter 18 Capital Regulation and The Basel Accords 1. Introduction: why capital regulation? 2. Effects of capital regulation 2.2. A model where banks have equity in excess of regulatory demand. There is some empirical evidence that banks choose a composition of funding where the share of equity is larger than what is demanded by regulators. Below we consider a simple model of largely competitive financial markets
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Reading Material - AFM Project A Project is a set of inter related activities leading to a complete tangible or intangible product or service. e.g construction of a building / dam / ship, launching of a new product, conducting national elections, state level professional admission process, setting up a new plant A project in business refers to an organized program of activity carried out to meet a definite goal. In business it may be to launch a new product, set up a new plant, increase
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Corp. (AIGFP), which is the business that wrote the credit default swaps that were a significant source of AIG’s liquidity issues in 2008. AIGFP reduced the notional amount of its derivative portfolio by 46 percent from $940.7 billion at December 31, 2009, to $505.8 billion at September 30, 2010. AIG has also reduced its exposure to its Securities Lending program, as described below. Securities Lending Solution: Maiden Lane II Multi-Sector Credit Default Swap Solution: Maiden Lane III Chronology
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risk but on reinvestment risk as well. When interest rate decrease, it is more difficult to reinvest coupon at a higher rate; they are stuck with low interest rates. Additionally, another factor would be the Bond ratings. Bond ratings are credit ratings provided by rating agency to determine the default risk of the bond; default happens
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tranches to suit specific needs of individual and institutional customers. This multiple class or tranche structure is known as the Collateralized Debt Obligation (CDO) structure. CDO structure is a way of redistributing the prepayment risk and credit risk. Rating
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ADMAP REVIEW OF THE MOVIE – INSIDE JOB Rohan Rambhia | PGP-10-155 Inside Job is an exemplary recount of how administrator’s role when exploited to form risky administrative strategies by means of faulty processes lead to a crisis of the stature of the recession of 2008. It is a comprehensive documentary which narrates the history of the collapse, not only going into great, informative depth about the risk-based strategies that put the global economy on the line, but looks back to the rise
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The Mortgage and Financial Crises: The Role of Credit Risk Management and Corporate Governance William W. Lang Federal Reserve Bank of Philadelphia Ten Independence Mall, Philadelphia, PA 19106 Phone: 215-574-7225 E-mail: William.Lang@phil.frb.org Julapa Jagtiani Federal Reserve Bank of Philadelphia Ten Independence Mall, Philadelphia, PA 19106 Phone: 215-574-7284 E-mail: Julapa.Jagtiani@phil.frb.org February 9, 2010 Abstract This paper discusses the role of risk management and corporate
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