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
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James Rodden Business Ethics Summer 2013 The Goldman Abacus Fund: Ethics You Can Count On Or Ethics That Don’t Add Up Set Up Imagine a physician is on the golf course with one of his colleagues‚ who happens to be a cardiologist. Somewhere on the back nine the cardiologist begins to tell the physician about one of his patients‚ a 52 year old man with blood pressure of 145/99‚ who is 40 lbs. overweight‚ chain smokes‚ and enjoys
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An Exploratory Report on Shadow Banking Neal Edmonson University of the District of Columbia Money and Banking Professor Muhammad Samhan March 4‚ 2013 Table of Contents Executive Summary 3 Findings 4 Risk 10 Regulation 11 Conclusion 12 Bibliography 13 Executive Summary This paper documents the institutional features of shadow banks‚ discusses their economic roles‚ and analyzes their relationship to the traditional banking system. It utilizes the print and web resources
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make most of their profits from ratings of MBSs so it was in their best interest‚ along with the investment banks‚ to keep rating troubled securities higher than they should. 4. The raw material for a collateralized debt obligation (CDO) is _______________? The raw material of these "obligations" were made up of cash flow generating assets such as bonds‚ mortgages‚ and loans. They are typically made up of BBB‚ A−‚ etc. tranches. These tranches included over three trillion dollars of loans to homebuyers
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and show why banks and financial institutions are enchanted by them‚ then readers will see how the overdeveloped CDOs led to the sub-prime crisis in the summer of 2007. 1. Introduction to CDOs CDOs or collateralized debt obligations are a type of security back by a diversified pool of debt instruments. CDOs are split based on the different underlying credit risk of different components of the asset. (Jones and Peat‚ 2008) In itself it is a particularly popular kind of asset-backed securities
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investment banker. Then‚ the banker borrows millions of dollars and buys thousands more mortgages. This means‚ every month he gets payments from all the home owners concerned. After that‚ he collects the mortgages in a so-called “CDO”‚ a collateralized debt obligation. This CDO is split into three different risk classes‚ from safe to mediocre to risky. Additionally‚ he insures the safest part for a fee‚ called “credit default swap”. In so doing‚ credit rating agencies give the investment a “AAA” rating
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CONTENTS INTRODUCTION DEFINITION_ OF COMMERCIAL BANK_ *“Banks and other deposit taking institutions are financial intermediaries whose assets consist overwhelmingly of loans to a wide variety of borrowers and whose liabilities consist overwhelmingly of deposits.” THE ECONOMICS OF MONEY BANKING AND FINANCE 3rd* Edition PETER HOWELLS & KEITH BAIN Pg 32 A sound system of banking is very important for any economy. Commercial banks are directly related to the payment system of the economy. Generally
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lend money to house buyers they will be expecting them to pay back the mortgages and consequently they would be careful to give out loans. Financial engineers then came up with the idea of putting together complex derivatives - called collateralized debt obligations (CDO)‚ partially based on mortgages‚ but also other various loans - this logic drastically changed. In this new system‚ lenders sold their mortgages to investments banks and did not care to whom they gave the loan‚ because they sold them
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Receivables Originator (Bank/FI) Loan Cash Liquidity Support Cash SPV Sell Receivables Credit Enhancement Securities Investors Types of securitization Residential mortgage backed securities (MBS) Asset backed securities (ABS) Collateralized debt obligations (CDO) Commercial mortgage backed securities (CMBS) Future flow securitization Requirements for securitization Legal environment Accounting environment Regulatory environment Tax environment Back office systems/Information System Strong
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Accounting’s Role in the Financial Crisis Introduction The accounting profession is responsible for delivering the information necessary to make correct decisions. To promote the dissemination of high quality information‚ accounting standard setters constantly struggle to keep standards up to date with the ever evolving markets. In light of the recent financial crisis‚ fair value accounting has come under scrutiny. Some critics go as far as to blame the whole crisis on fair value accounting
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