Magic Bible Arts – Extrait 10
wonderful name, got spoiled, poor them. Cash is king, what kingdom is that? In this kingdom, everything are TLAs nowadays. Studies have shown plan in three points, acronyms of three letters, solution delayed in three consequences are equilibrium. Come back to physics: Since Eisenberg, we are living in four dimensions. What a step back. Well, Edward went through it. He understands, but it does not stand by it. Example in a play: the subprimes lie Turning around, and around, and around In a world very confused and very complex, where we believe more in end times than in our times, I will come back on one event in the last 3 years: the subprime crisis, and put a context in another context. The information disclosed below is how I understand it; please correct me if reckoning a wrong simplification. Subprimes One source (French) HYPERLINK "http://www.maths.univ-evry.fr/chaire_risque_de_credit/Armand_Ngoupeyou.pdf" http://www.maths.univ-evry.fr/chaire_risque_de_credit/Armand_Ngoupeyou.pdf
The initial idea behind subprime is to offer people not having bank guarantee the possibility of contracting a loan in order to buy an asset (an house for example). These loans were contracted with an initial fixed rate, generally low, during the first few years and a variable rate, after. Due to the risk intrinsic to the coverage of the loans by the individuals, these loans entered the financial system through another financial vehicle: the CDO (Collateralized Debt Obligation).
The CDO aggregates different loans of different risks. For example, a group of high risk loan were aggregated to some more insured. The aggregation, balancing these loans into a single vehicle, enables an easier exchange through the financial system. CDS (Credit Default Swap) were contracted on these CDO. The company providing the CDS, generally with good agency rankings, insures the risk of default from the interest and the principal on every single loan in the CDO vehicle.
As a counterpart, CDS holders were gaining a rent as part of their insurance onto the loans. Subprime became as widely available as it offered the opportunity for one individual to get what he wanted right now and evolving in a field where regulations were very low, that derivatives (CDO, CDS) of financial vehicles were created over and over. Hence, from my understanding, CDS down the chain were aggregated in a single CDO, and on, and on and on.
While it would have worked if the CDO were rightly balanced, the situation evolved in the extreme. To take an example, we like probabilities. Hence taking a normal curve, normally you have 95% chance to stay in an interval of medium plus/minus a factor of the variance. The situation so evolved with time. And we began to evolve in the part of the normal curve where it was no longer subject to probability of normal behaviors. Drifting to the extreme of the curve, the CDOs and CDSs displayed their structure imbalance. And Defaulting starts. To the extent we did reckon. Given most banks were contracting in this kind of structure, it created a structural imbalance to their portfolio, and they soon arrived to a dead end situation where only money from the central banks would rescue the system.
Hence, for example, Freddie Mac and Fannie Mae were nationalized and further money coming from the governments and the central banks were inputted into the system to stabilize it. While subprime offers one individual with no bank guarantee the right to contract a loan, the greed extends as we know to bank looking to use this opportunity to make more money. As Goldmann Sachs was put in frame earlier this year, ( HYPERLINK "http://www.guardian.co.uk/business/2010/apr/16/goldman-sachs-fraud-charges" http://www.guardian.co.uk/business/2010/apr/16/goldman-sachs-fraud-charges), financial system and hence banks did
⬅️ Extrait prĂ©cĂ©dent | Extrait suivant ➡️
đź”– Labels : MBA Magic Bible of Arts, Magic Bible Arts – Extrait 10
