October 6th, 2008


Размер имеет значение

25 фраз, которые лучше сказать про себя:

1. Ах, какой миленький.
2. А может просто поваляемся?
3. Знаешь, сейчас это хирурги исправляют.
4. Пусть он попляшет.
5. А можно я на нем рожицу нарисую?
6. О! А ноги у тебя такие большие...
7. Ну ничего, мы над этим поработаем.
8. А если я его сожму, он пискнет?
9. Насос прилагается?
10. (хихикнуть и показать пальцем)
11. Хочешь, я буду с тобой откровенна?
12. Хорошо, что у тебя так много других талантов.
13. Теперь понятно, почему у тебя такая машина.
14. Может, если его полить, он вырастет?
15. За что меня Бог наказывает?
16. По крайней мере, это не займет много времени.
17. Никогда такого раньше не видела.
18. Но он хотя бы работает?
19. Он у тебя такой ... непользованный.
20. Может, на свету он лучше выглядит?
21. Давай лучше покурим.
22. Ты что, замерз?
23. Ну, только если меня сначала хорошенько напоить...
24. Это что, оптический обман?
25. Что это?

Мда... Было бы смешно, если бы не было так грустно.
Кстати, а какой размер вы считаете маленьким? И что важнее - длина или толщина?

Forum on economic turbulence

Прямо сейчас у меня в школе проходит форум о тяжелых экономических временах. Прогноз пока неутешительный. Вот заметки с форума.

Professor Leland:
Mkt fell 370 points today. IS there anything in the recent times that got us there?
• Real estate prices
• Lowering interest rates
In the 2003 - remarkable decline in volatility, including in perception. The "fear index" was very low. (VIX Volatility market). Risks reached 10%. GS paid on 0.2 for risk - before 1%. Decline in credit spreads (perceived default risk). So everybody expected that all gonna be just fine.
Lower volatility always was followed by high volatility. Now it's the highest since the beginning of the index history. Now we expect it to go down.
• You can take a lot of leverage. GS raise book leverage to 30:1 - mkt leverage 15:1.
• Subprime mortgage - low or no down payment
• CDOs:Small equity tranche 3-5%
• CDS (Credit default swops): 50:1 leverage
• People thought that risk were to stay low.
If the firm is highly leverage, they start selling assets to raise capital. Everybody is selling assets that trigger even more selling leading to even further price decline.

Opaque net risk exposured of banks

Mkts will force greater transparency
Lower leverage
Less complex derivatives and capital structure
CDSs should have a central clearing mechanism

New government role:
• Required reporting of derivatives exposure to major risk factors
• Should leverage of non-traditional bank activities be regulates?
If buy at higher price, mkt will regain confidence.
But is it so?

Banks can get fractional equity participation when home is sold - replace fixed payment with lower principal.

Nance Wallace

• Delinquency rate, foreclosure rate
• High default rate - 2+%
• Subprime mkt supply chain - fee business with inadequate capital. Too many intemediaries
• Pools of mortgages - CDO (collaterized debt obligations) - a lot was sold off-shores.
• Very little capital. High fees.

Special Purpose Vehicle SPV
Loan pool - senior tranche - mezzanine tranches - equity tranches - over-collatelarization - prepayment premuim/charger - clean up call

Credit default swap : insurance on the performance. Insurance on the low premium. Inv banks are selling CDSs. Collateral of insurance - collateral.

CDS counterparty risk:
No standartization, no central clearing house.
Many CDOs are sellers of CDS.
CDS positions are long and can only be unwound with countervailing positions.

• Regulatory response
• Establish cliearing house for CDS
• Lead to segmentations of banks.

James Wilcox

What lead to crisis:
• Easy monetary policy in the US
• Increase in worldwide supply of funds
• Lax lending
• House prices bubbled up - not only in the US
• House prices fell a lot

Financial crisis - not economic crisis yeat.

• Mortgage loan losses
• Great uncertainties:
• About how large and where losses were
• About how large they might become

Modern day "runs":
• Funds withdrawn, at or before maturity (shadow banking system) (short periods)
• Cash register almost empty
• Can't sell assets quickly for full value

Jump in one-month LIBOR spread over comparable T-bill - huge increase in banks borrowing costs

Outstanding commarecial paper hits new cycle low.
Credit mkt frozenL
Fear of runs led to scramble for liquidity
Hold cash just in case
One way to build liquidity is to not re-lean loans that are paid off
• Banks have tightened loan requirements
• Another way is trade loans for cash at Fed
Reduced purchases of loans:
• buying would require letting go of cash
• Mkt price hard to discern

Out of fear, banks are not willing to buy or sell new loans.
As the consequences - borrowing costs went up.
Recession effects on top of financial effects
Spread between high-yield debt and 10-yr Tnotes is also very high
Amount of borrowing from Fed is very high

• Bailout plan - stop the panic, even if it was not clear.
• Authorized Treasury to buy assets - somebody there start buying and selling. Reverse auction. - kick mkt going.
• Plan is not to sell homeowners but to" prime the pump"
• New programs to follow?