A Collateralized Debt Obligation or CDO is (according to The Big Short) a lumping together of many different loans into one big loan. And the market crashed in 2008 primarily because many of these CDOs were full of loans that should have been rated poorly‚ but due to a combination of greed‚ stupidity‚ and fear‚ the CDOs were rated at the highest possible rating‚ a AAA. Think of The Big Short as a CDO. It is a mixture of ideas from lots of better movies‚ all lumped together‚ and it desperately wants
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innovations like collateralized debt obligations (CDOs) and credit default swaps (CDSs)‚ created by greedy bankers who did not understand their own creations (e.g. McDowell 2011). Do you agree or disagree with this analysis? Give reasons for your answer. Greedy can be defined as having a strong desire to have more than you have already got. The bankers discussed in this piece‚ who were involved in the creation of products they knew little about‚ fit this definition perfectly. Collateralized debt obligations
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the shadow banking system‚ the proliferation of Collateralized Debt Obligations (CDOs) and prime lending affected those economies that were directly linked to the US. The UK and many countries in Europe were affected because of the complex network of financial institutions that were transacting with toxic asset. As pointed out by Harisson‚ the management of debts got out of control and affected others. The regulatory authorities lost track of this debt mountain‚ because it was quickly repackaged in
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The Global Financial Crisis of 2007-2008 The Global Financial Crisis 2007-2008 Economists and scholars spend years dissecting financial markets and evaluating the causes of booms and busts. Throughout United States history there have been multiple economic booms that were underestimated and followed by recessions. In the situation of the 2007-2008 global financial crisis many culprits have been identified as causes‚ such as loose monetary policy‚ credit booms‚ deregulation‚ over complexity‚
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Over-leveraging‚ credit default swaps and collateralized debt obligations as causes Another probable cause of the crisis -- and a factor that unquestionably amplified its magnitude -- was widespread miscalculation by banks and investors of the level of risk inherent in the unregulated Collateralized debt obligation and Credit Default Swap markets. Under this theory‚ banks and investors systematized the risk by taking advantage of low interest rates to borrow tremendous sums of money that they could
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corporate debt in OCI and the remainder in earnings. Additional facts related to specific securities and derivatives owned by FFC are described below. Also refer to the data table at the end of this section for the fair value amounts for each instrument needed to complete the case. S tudents should assume that all amounts discussed below and those included in the data tables are U.S. dollars in thousands. Instrument 1 — Collateralized Debt Obligation • FFC classifies its collateralized debt
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Table of content Question 1 2 Question 2 2 Question 3 3 Question 4 3 Question 5 3 Question 6 4 Question 7 4 Question 1 We are given two bonds with the same interest rate of 5%‚ and no one of bonds has an embedded option so they will not be exercised prior to the date of maturity. Moreover‚ both bonds are traded in one market and they have identical yield‚ therefore it is irrelevant factor. However‚ two bonds have different term of maturity: bond A matures in 15 years‚ while bond B matures only
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the new system‚ what the banks did was sell all the mortgages to the investment bankers. From here the investment banks collated all the loans (house loans‚ car loans‚ personal loans etc.) into single entity/derivatives called as Collateralized Debt Obligations (CDO). The investment banks sold these CDOs to investors. These CDOs had a high rating given to them by rating agencies. The rating agencies were paid by the investment banks to give these derivatives a high rating. These CDOs were
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What the Heck Just Happened. The Causes of the Financial Meltdown in 2008. Paul J. Mahoney Brandman University The Government of the United States‚ in an attempt to appease everyone and level a playing field‚ as well as stave off a recession created the biggest reasons for the financial meltdown of 2008. “US. Housing policies are the root cause of the current financial crisis. Other players‚ greedy investment bankers; foolish investors; imprudent bankers; incompetent rating agencies; irresponsible
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....................................... 7 ASSET BACKED SECURITIES (ABS)..................................................................... 7 MORTGAGE BACKED SECURITIES (MBS‚ RMBS‚ CMBS)............................................ 8 COLLATERALIZED DEBT OBLIGATIONS (CDO‚ CLO‚ CBO) .......................................... 8 ASSET BACKED COMMERCIAL PAPER (ABCP) ..........................................................
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