test page. udls economic series (2008-02-15)the world bank lucas rizoli (2008-03-07)the stock...

TEST PAGE

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…

World Economic Forum Bank Ratings

1) Canada2) Sweden3) Luxembourg4) Australia5) Denmark

40) US44) UK

Layoffs

Banking Shadow Banking

Derivatives OTC DerivativesFutures Market

$81T

Swaps

$596T

Regulated Unregulated

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:

Cast of Characters

Ignorant Consumer Irresponsible Institution Investor Asshole

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

Credit Default Swap

Analogy Land: Insuring a House

Credit Default Swap

Finance land: Insuring a Bond

collateral

Credit Default Swap

collateral

Finance land: Insuring a Bond You Don’t Own

Credit Default Swap

Analogy land: Insuring a House You Don’t Own

???

Credit Default Swap

5T corporate bond market60T CDS outstanding

Credit Default Swap

collateral

Credit Rating

AAA

A

BBB

Credit Default Swap

Collateralized Debt Obligation

Collateralized Debt Obligation

Leverage:

$100 $110$10M $11M

Canadian Banks: 18:1

US Banks: 26:1

EU Banks: 61:1

Collateralized Debt Obligation

Collateralized Debt Obligation

Leverage

Collateralized Debt Obligation

Mortgages

CDO

Collateralized Debt Obligation

AAA

BBB

Bad

CDS

Collateralized Debt Obligation

Fully Documented

Stated Income Verified Assets (SIVA)

Stated Income Stated Assets (SISA)

No Income No Assets (NINA)

Collateralized Debt Obligation

Collateralized Debt Obligation

AAA

BBB

Bad

CDS

Gaussian Copula Formula

David X. Li

Formula published in 2000

Used to quantify risk using “correlation”

Idea from analyzing life expectancy after spousal death

Gaussian Copula Formula

Γ = Correlation Constant

Based on CDS Prices!

CDS Invented in 1997, Use history of mortgages since 1997….

Gaussian Copula Formula

Gaussian Copula Formula

AAA

BBB

Bad

CDS

Rating Assumptions:

Housing Prices Always Go Up

Default Rates Are Low

RRSP401(k)

Solution