David Harper's Library tagged lk → View Popular

At the moment the CDS transaction was entered, the buyer and seller were even, but if the credit of the reference entity begins to decline, the CDS spread will rise, and at that point the buyer is "in the money"--it is paying a lower premium than the risk would warrant
"daisy chain" is an example of interconnections created by CDSs that might in turn create systemic risk

30 Sep 09

FinReg21 | Should Mortgages be Securitized? | FinReg21|Reforming Financial Services Regulation in the 21st Century

kling is brilliant (again) on mortgage securitization

www.finreg21.com/...hould-mortgages-be-securitized - Preview

lk finreg21 kling

prepayment risk, or the cost of the prepayment option
This might be called duration risk, because the cash flows from the mortgage have a longer duration (the last payment will not be received until thirty years from the date of origination) than the holder's liability (a five-year bond in our example)
13 more annotations...
- by the early 1980s, the approach of funding mortgages with short-term deposits was discredited.
- Our capital policy was tied to something that we called “the Moody's scenario
- principal-agent problems.
- a qualification system for sellers. To sell loans to Freddie Mac, you had to prove that your staff had experience and you had to show sufficient capital that you could buy back loans that had been improperly originated.
- -quality control
- by issuing callable debt
- The innovation of callable debt ultimately produced a dramatic change in the mortgage market.
- Most of all, however, the guarantees were credible because of the perception that it would be politically unacceptable to allow those firms to fa
- a number of innovations emerged that substituted for an agency guarantee,
- it is not clear where that responsibility lay
- sharp fall in the market share at the two agencies
- Systemic risk is the risk that conditions in the overall housing market will take a sharp turn for the wors
- credit risk includes both systemic risk and idiosyncratic risk.

29 Sep 09

Report on Special Purpose Entities

BIS report on SPE

www.bis.org/joint23.htm - Preview

lk SPE BIS

24 Sep 09

Mitigating the procyclical effects of bank capital regulation | vox - Research-based policy analysis and commentary from leading economists

Under the internal ratings-based approach of Basel II, capital requirements are an increasing function of the probability of default, loss given default, and the exposure at default, and these inputs are likely to rise in downturns. Thus, when a recession worsens borrowers’ creditworthiness, it significantly increases banks’ capital requirement, contracting the supply of credit.

www.voxeu.org/index.php - Preview

lk basel procyclical irb

Credit Risk Chronicles: Court says Lehman derivatives contracts are unenforceable

Lehman derivative contracts unenforceable

creditriskchronicles.blogspot.com/...man-derivatives-contracts.html - Preview

lk counterparty netting

23 Sep 09

fi360 Blog: Identifying the fiduciaries

who is a fiduciary

blog.fi360.com/...fiduciary-definition.html - Preview

lk fiduciary

Does the past predict the future? | Free exchange | Economist.com

I don't like predictions, esp about the future

www.economist.com/..._the_past_predict_the_futu.cfm - Preview

lk model risk

Across the Curve » Blog Archive » Ultra Long Bond Contract

ultra futures should normalize LT swap spread

acrossthecurve.com/?p=8810 - Preview

lk treasury

22 Sep 09

CME Group Announces the Launch of Long-Term U.S. Treasury Bond Futures - Sep 22, 2009

CME launches "ultra" long term treasuries: at least 25 years to maturity

cmegroup.mediaroom.com/index.php - Preview

lk treasury

21 Sep 09

CXOAG Investing Notes – Equity Risk Premium Book Learning

while mid-single digits may be a reasonable rough estimate for the equity risk premium, there is not a generally accepted value for it or method of estimating it.

www.cxoadvisory.com/...blog9-21-09 - Preview

lk erp

16 Sep 09