Bank liquidity risk is the risk of not having sufficient funds to meet payments such as those arising from unexpected changes in customers’ withdrawals or loan draw-downs (Gup, Avram, Beal, Lambert&Kolari, 2007). Liquidity risk can be measured using simple liquidity ratio or dynamic liquidity ratio. “Simple liquidity ratio is calculated by first identifying the bank’s liquid assets and then expressing this as a percentage of its total assets” (Gup et al., 2007, p.356). It only considers asset
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failing housing market. In this deal supposedly Paulson netted $1 billion (nydailynews.com) 9. In December 2009, it was reported that Paulson had profited during the financial crisis of 2007 by betting against synthetic collateralized debt obligations. Paulson and others successfully protecting these bets by preventing attempts to limit foreclosures and rework mortgage loans (Wikipedia) 10. John Paulson donated $15 million to the Center for
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of AIG was writing insurance in the form of credit default swaps. These swaps offered buyers protection against losses on debts and loans of borrowers in the amount of $447 billion (Gilani, 2008). AIG also participated in collateralized debt obligations (CDOs) that mainly incorporated subprime mortgages and Alt-A mortgages, just to name a few. AIG used these premiums as supplemental income that turned into high earnings during the housing boom (Gilani, 2008). When the housing market crashed AIG
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THE SUBPRIME CREDIT CRISIS AND CONTAGION IN FINANCIAL MARKETS Francis A. Longstaff∗ Abstract. We conduct an empirical investigation into the pricing of subprime assetbacked CDOs and the resulting contagion effects on other markets. Using data for the ABX indexes of subprime CDO prices, we find strong evidence of contagion effects. In particular, we find that contagion effects spread first from lower-rated ABX indexes to higher-rated ABX indexes, and then from the subprime markets to the Treasury bond
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The Credit Crunch of 2007: What Went Wrong? Why? What Lessons Can Be Learned? First draft: September 2008 This draft: May 2009 John C. Hull* Joseph L. Rotman School of Management University of Toronto Abstract This paper explains the events leading to the credit crisis that began in 2007 and the products that were created from residential mortgages. It explains the multiple levels of securitization that were involved. It argues that the inappropriate incentives led to a short‐term focus in the decision making of traders and
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This paper will now discuss the history that led up to the 2008-2009 credit crises. October 29th 1929 was the day the United States stock market crashed and became known as Black Tuesday. Stocks became popular during economic expansion. As up and coming businesses were growing they needed funds to assist with development and were a widely popular way for investors to gain wealth. But on October 29th that would all change when stocks plummeted, and when investors tried to sell the stock no one
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article I found is about Wachovia Capital Markets LLC where the company’s research analysts issued biased coverage to help them acquire investment-banking business. Wachovia’s suspected fraud involved two instruments known as collateralized debt obligations, or CDOs (David S. Hilzenrath, 2011), which means that when Wachovia could not find a buyer the company would mark down the value of investments. Later Wachovia would try to sell the investments at a much higher rate to other companies, which, in
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ide JobInside Job (Sony Pictures Classics). Produced, written and directed by Charles Ferguson. Review by Marsha Feinland Inside Job provides a comprehensible lesson on the current economic crisis and an entertaining expose of the slimy players behind it. The movie starts in Iceland. A formerly prosperous population suddenly lost its wealth, income and job base when the economy collapsed. The government had privatized the banks and deregulated industry, allowing speculators to finance risky
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I. II. TABLE OF CONTENTS Summary................................................................................................................... 1 Background .............................................................................................................. 2 A. The Examinations ................................................................................................ 2 B. Current Regulatory Requirements and Proposed New Rules and Rule Amendments With Respect to Credit Rating
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Collateralized debt obligation A collateralized debt obligation (CDO) is a type of structured asset-backed security (ABS).[1] Originally developed for the corporate debt markets, over time CDOs evolved to encompass the mortgage and mortgage-backed security ("MBS") markets.[2] Like other private label securities backed by assets, a CDO can be thought of as a promise to pay investors in a prescribed sequence, based on the cash flow the CDO collects from the pool of bonds or other assets it owns.
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