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债务抵押债券与金融危机 Collateralized Debt Obligation (CDO) and Financial Crisis

时间:2017-10-25 15:30来源 作者:英国论文网 点击联系客服: 客服:Damien
Banking crisis 银行业危机
To have a better understanding of 2008-2009 financial crisis we need to know where does it start and why it become global issue. The main reason for this financial meltdown of the economy was the Collateral debt obligation and rating agencies who rate them.
CDO is acronym for Collateralized debt obligation. Longstaff and Arvind (2008) describe CDO as: “financial claim to the cash flows generated by a portfolio of debt securities or, equivalently, a basket of credit default swaps (CD contracts)”. To find out the main reason for this crisis, it is important to know how these CDOs work.
Banks combine loan such as Mortgage Backed Security (MBS) and Mortgages, with different risk combinations from AAA to BB. Financial engineers gathered these CDOs in a pool to make incentives for potential investors to purchase them with lower risk. McLean, Bethany and Nocera (2010) mentioned that CDOs contain variety of loans in early 2000. But with boom in hosing mortgages, a big tranches of CDOs become sub-prime mortgages with risk level of A or BBB. But rating agencies still rate CDOs as high rating investments (Barnett-Hart 2009 sited by Lewis 2010). This financial innovation allow investors all around world to invest in US housing industry, therefore when housing bubble collapse due to sup-prime mortgages, investors face an catastrophes loss.
The question here is why it became so easy for banks to start CDOs? Usually investors with huge amount of money buy treasury bills of US which are the safest investment with AAA ranking, but after dotcom bubble, US Federal Reserve chairman, Alan Greenspan, lowered interest rate of treasury bills to 1% to stimulate economy of US and keep it strong. On the other side of this decision, borrowing money for banks became very easy with very low interest rate; moreover the surpluses from other countries such as Middle East and China comes in the US market and make borrowing super cheap for the banks. Surplus money persuades bankers to use leverage in their loans. The investors became interested to this market and banks bring new financial innovation to connect the investors to the home owners through CDOs, and sell CDOs to the investors.
Banks give mortgage loans to people with low interest rate and low risk, when the market for secure borrowers was saturated, banks start to deregulate the market and give loans without need of formal grantee to repay. These kinds of loans are called liars loans!(责任编辑:BUG)

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