TEST PAGE. UDLS Economic Series (2008-02-15)The World Bank Lucas Rizoli (2008-03-07)The Stock MarketKevin Swersky How To Ruin The Economy Housing, Banking,

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Presentation transcript:

TEST PAGE

UDLS Economic Series ( )The World Bank Lucas Rizoli ( )The Stock MarketKevin Swersky How To Ruin The Economy Housing, Banking, The Man, And You! UDLS Economic Series Presents…

World Economic Forum Bank Ratings 1)Canada 2)Sweden 3)Luxembourg 4)Australia 5)Denmark 40) US 44) UK

Layoffs

BankingShadow Banking DerivativesOTC Derivatives Futures Market $81T Swaps $596T RegulatedUnregulated

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 InstitutionInvestor 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 market 60T CDS outstanding

Credit Default Swap collateral Credit Rating AAA A BBB

Credit Default Swap

Collateralized Debt Obligation

Leverage: $100 $110 $10M$11M Canadian Banks: 18:1 US Banks: 26:1 EU Banks: 61:1

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

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

AAA BBB Bad CDS Rating Assumptions: Housing Prices Always Go Up Default Rates Are Low RRSP 401(k)‏

Solution