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