TEST PAGE. UDLS Economic Series (2008-02-15)The World Bank Lucas Rizoli (2008-03-07)The Stock...
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Transcript of TEST PAGE. UDLS Economic Series (2008-02-15)The World Bank Lucas Rizoli (2008-03-07)The Stock...
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TEST PAGE
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UDLS Economic Series(2008-02-15) The World Bank Lucas Rizoli(2008-03-07) The Stock Market Kevin Swersky
How To Ruin The EconomyHousing, Banking, The Man, And You!
UDLS Economic Series Presents…
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World Economic Forum Bank Ratings
1) Canada2) Sweden3) Luxembourg4) Australia5) Denmark
40) US44) UK
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Layoffs
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Banking Shadow Banking
Derivatives OTC DerivativesFutures Market
$81T
Swaps
$596T
Regulated Unregulated
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Credit Default Swap
Collateralized Debt Obligation
Gaussian Copula Formula
Simplicity of Insurance with the Stability of Gambling
Bundling and Re-arranging of Crappy Assets
Why Statistics Isn’t a Real Science©
Credit Freeze:
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Cast of Characters
Ignorant Consumer Irresponsible Institution Investor Asshole
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Credit Default Swap (CDS)
Made exempt from regulation in 2000 in the US
Invented in 1997 by JP Morgan Chase
“Big Six” Canadian Banks hold about $800 Billion in CDS
US CDS market is $62 Trillion
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Credit Default Swap
Analogy Land: Insuring a House
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Credit Default Swap
Finance land: Insuring a Bond
collateral
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Credit Default Swap
collateral
Finance land: Insuring a Bond You Don’t Own
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Credit Default Swap
Analogy land: Insuring a House You Don’t Own
???
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Credit Default Swap
5T corporate bond market60T CDS outstanding
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Credit Default Swap
collateral
Credit Rating
AAA
A
BBB
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Credit Default Swap
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Collateralized Debt Obligation
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Collateralized Debt Obligation
Leverage:
$100 $110$10M $11M
Canadian Banks: 18:1
US Banks: 26:1
EU Banks: 61:1
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Collateralized Debt Obligation
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Collateralized Debt Obligation
Leverage
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Collateralized Debt Obligation
Mortgages
CDO
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Collateralized Debt Obligation
AAA
BBB
Bad
CDS
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Collateralized Debt Obligation
Fully Documented
Stated Income Verified Assets (SIVA)
Stated Income Stated Assets (SISA)
No Income No Assets (NINA)
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Collateralized Debt Obligation
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Collateralized Debt Obligation
AAA
BBB
Bad
CDS
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Gaussian Copula Formula
David X. Li
Formula published in 2000
Used to quantify risk using “correlation”
Idea from analyzing life expectancy after spousal death
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Gaussian Copula Formula
Γ = Correlation Constant
Based on CDS Prices!
CDS Invented in 1997, Use history of mortgages since 1997….
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Gaussian Copula Formula
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Gaussian Copula Formula
AAA
BBB
Bad
CDS
Rating Assumptions:
Housing Prices Always Go Up
Default Rates Are Low
RRSP401(k)
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Solution