1. For years, the interest rates prevailing in international financial markets have been exceptionally low
.
2. This has meant that banks have seen the business that made them smaller:
a. Gave a low-interest loans B.
Pay something for the customer deposits (zero if the tank is
current account and, moreover, charge maintenance fees, paid "unless something")
c. But nevertheless, the net interest income ("a" minus "b") decreased
3. To someone, then in America, came to the banks had to do two things: a.
Give more risky loans, they might be able to charge more interest
b. Compensate for the low range by increasing the number of operations (1000 x bit is
more than 100 x bit)
4. As for the former (riskier loans) decided: a.
Offer mortgages at a rate of customers, the "ninja" (no income, no job, no assets, that is,
people without steady income, no fixed employment, no properties)
b. Charge more interest, because more risk
c. Harnessing the housing boom was in the U.S. market
d. Moreover, full of enthusiasm, decided to grant mortgage loans
worth more than the value of the house that he bought the ninja, because, with the above
property boom, the house, in a few months, worth more than the amount given on loan. E.
This type of mortgage, they were called "subprime mortgages"
i. They are called "prime mortgages"
which they have little risk of default. On a rating scale between 300 and 850 points,
prime mortgages are priced between 850 and 620 points the best the
less good.
ii. They are called "subprime mortgages" have the most
risk of default and are priced between 620 and 300 the least good, the bad
. F.
Moreover, as the U.S. economy was going well, now insolvent debtor could
find work and pay the debt without problems. G.
This approach was well for some years. In those years, the ninja were
paying the mortgage terms and, moreover, as I had
more money given that your house was worth, had bought a car, had made reform at home and
had gone on vacation with the family. This, surely, in installments, with the extra money
they had charged and, in some cases, which were paid in a botched job or
.
2. This has meant that banks have seen the business that made them smaller:
a. Gave a low-interest loans B.
Pay something for the customer deposits (zero if the tank is
current account and, moreover, charge maintenance fees, paid "unless something")
c. But nevertheless, the net interest income ("a" minus "b") decreased
3. To someone, then in America, came to the banks had to do two things: a.
Give more risky loans, they might be able to charge more interest
b. Compensate for the low range by increasing the number of operations (1000 x bit is
more than 100 x bit)
4. As for the former (riskier loans) decided: a.
Offer mortgages at a rate of customers, the "ninja" (no income, no job, no assets, that is,
people without steady income, no fixed employment, no properties)
b. Charge more interest, because more risk
c. Harnessing the housing boom was in the U.S. market
d. Moreover, full of enthusiasm, decided to grant mortgage loans
worth more than the value of the house that he bought the ninja, because, with the above
property boom, the house, in a few months, worth more than the amount given on loan. E.
This type of mortgage, they were called "subprime mortgages"
i. They are called "prime mortgages"
which they have little risk of default. On a rating scale between 300 and 850 points,
prime mortgages are priced between 850 and 620 points the best the
less good.
ii. They are called "subprime mortgages" have the most
risk of default and are priced between 620 and 300 the least good, the bad
. F.
Moreover, as the U.S. economy was going well, now insolvent debtor could
find work and pay the debt without problems. G.
This approach was well for some years. In those years, the ninja were
paying the mortgage terms and, moreover, as I had
more money given that your house was worth, had bought a car, had made reform at home and
had gone on vacation with the family. This, surely, in installments, with the extra money
they had charged and, in some cases, which were paid in a botched job or
they had achieved.
5. 1st. Comment: I think, so far, everything is clear and it is clear that any
person with common sense, although not a financial expert, you may think that if something
fails, the bump may be important.
6. As for the second (increased number of operations):
a. As many banks were giving mortgages, they had the money.
The solution was easy: go to foreign banks to lend them money for something is
because of globalization. Thus, the money that I, this morning, I entered
Central Office Savings Bank of San Quirico Safaja
may be that afternoon in Illinois, because there is a bank which my box
Savings has paid my money to lend it to a ninja. Of course, that of Illinois
not know that the money will come from my people, and I do not know what my money,
deposited in an institution as I would Savings Bank, began to be in a
some risk. Neither does the Director of the Office of my box, who knows, and presumably
that works in a serious institution. Neither does the President of the Savings Bank
, only known to have invested some money of their investors
a major U.S. bank.
7. 2 No comment: globalization has its advantages but also disadvantages, and their
hazards. The people of San Quirico not know they are taking a risk in the U.S. and
when he begins to read that there are subprime mortgages, thinks: "What do these
crazy Americans!"
8. In addition, it appears that there are "Rules Basel, which require banks around the world
have a minimum capital in relation to their assets. To oversimplify, the Balance
Bank of Illinois is:
5. 1st. Comment: I think, so far, everything is clear and it is clear that any
person with common sense, although not a financial expert, you may think that if something
fails, the bump may be important.
6. As for the second (increased number of operations):
a. As many banks were giving mortgages, they had the money.
The solution was easy: go to foreign banks to lend them money for something is
because of globalization. Thus, the money that I, this morning, I entered
Central Office Savings Bank of San Quirico Safaja
may be that afternoon in Illinois, because there is a bank which my box
Savings has paid my money to lend it to a ninja. Of course, that of Illinois
not know that the money will come from my people, and I do not know what my money,
deposited in an institution as I would Savings Bank, began to be in a
some risk. Neither does the Director of the Office of my box, who knows, and presumably
that works in a serious institution. Neither does the President of the Savings Bank
, only known to have invested some money of their investors
a major U.S. bank.
7. 2 No comment: globalization has its advantages but also disadvantages, and their
hazards. The people of San Quirico not know they are taking a risk in the U.S. and
when he begins to read that there are subprime mortgages, thinks: "What do these
crazy Americans!"
8. In addition, it appears that there are "Rules Basel, which require banks around the world
have a minimum capital in relation to their assets. To oversimplify, the Balance
Bank of Illinois is:
ASSETS Cash Money Loans granted
X million
TOTAL LIABILITIES
have lent money to other banks
Capital Reserves
TOTAL X million
The Basel Accords require the Capital of the Bank is not below a certain percentage of assets
. Then, if the Bank is asking for money to other banks and giving
many credits, the percentage of capital on Assets of the Bank's low and does not comply with the Guidelines of the Basel
.
9. You have to invent something new. And that again is called securitization: the Bank of Illinois
"packages" of mortgages-prime and subprime-in packages that are called MBS (Mortgage Backed Securities
, or obligations secured by mortgages). So, where once had 1,000 mortgages
"loose" in the account "Loans granted, now has 10 packs of 100 mortgages
each, in which there is everything good (prime) and bad (subprime)
as the Lord's vineyard.
10. The Bank of Illinois will sell quickly and those 10 packages:
a. Where does the money you get for these packages? Go to Active
the account "Cash Money", increasing, decreasing by the same amount
Account Credits granted ", so that the share Capital / Loans granted
improvement and the Bank Balance meets Basel rules. B.
Who buys these packages and also buy them quickly so that the Bank of Illnois
"clean" their balance immediately? Very good question! The Bank of Illinois
creates subsidiaries, conduits, which are not companies, but
trusts or funds, and therefore are not required to consolidate Balances with the Bank
matrix. That is, suddenly appear on the market two types of entities: i.
The Bank of Illinois, with a clean face
ii. The Chicago Trust Corporation (or the name you put ye
) with the following balance: ACTIVE
The 10 packages of mortgages
LIABILITIES Capital: what you pay for those packages
11. 3rd. Comment: If any person working in the Savings Bank of San Quirico, from the Chairman
Director of the Office know anything about this, quickly look for another job.
Meanwhile, everyone speaks in Expansion of its international investments, of which you see
do not have the slightest idea.
12. How are they financed the conduits? In other words, where do they get money to buy the Bank of Illinois
packages of mortgages? In several places:
a. Through loans from other banks (4 º Review: The ball is becoming more
large)
b. Engaging the services of investment banks can sell the MBS to
Investment Funds, Venture Capital, Insurance, Financial Holding companies
a family, etc. (5 º Comment: Notice that the danger is approaching us
, not Spain, but our family, as well, encouraged by the
Director of the office of San Quirico, go and put my money in an investment fund)
c. What happens is that to be "financially correct" or MBS conduits were
to be well-qualified rating agencies that give ratings based on the creditworthiness
. These ratings say, "this company in this State, this
organization can lend money without risk," or "beware of these other
because you risk not being paid." D.
I include here what I said the word "Rating" of this dictionary, so to have it all in
the same block:
RATING. Rating of a company or an institution, made by a specialized agency
. In Spain, the lead agency in this field is Fitch Ratings.
The levels are:
AAA, the highest AA
A BBB BB
others, but very bad
Overall:
a bank or large usually has a rating of AA
A Bank or medium a rating of A
e. The rating agencies gave these ratings or were given other names,
more sophisticated, but in the end, say the same thing: They called
:
investment grade MBS representing the prime mortgages, or That is, the less
risk (would the AAA, AA and A)
Mezzanine, the intermediate (I guess maybe the BBB and BB)
Equity to poor, high risk, that is, to subprime, which in this shed, are the protagonists
f. Investment Banks placed easily the best (investment grade) to
conservative investors, and low interest. G.
Other Fund Managers, Venture Capital, etc., more aggressive.
sought, at all costs, higher returns, among other reasons because these gentlemen
earning the year-end bonus depending on the profitability.
h. Problem: How ill sell MBS managers latter without being noticed too
are incurring excessive risk? I.
6 º Review: The plot thickens and, of course, the Savings Bank of San Quirico
still making statements Expansion happy and content, speaking of the
smooth running of the economy and Social Work are doing. J.
Some investment banks were able, from a re-rating agencies (a re-rating
, a word that does not exist, but it serves to understand)
k. The re-rating was invented to raise the rating of the MBS bad, consisting of: i.
Structure it in sections, which are called
trances, ordering, from highest to lowest, the probability of a default, and the commitment to prioritize
paying the least bad. Ie
1. I bought a package of MBS, which I'm told that the three first
MBS are relatively good, the three seconds, very
regular and three others, frankly bad. This means I
package MBS structured in three tranches the
relatively good, very consistent and very bad.
2. I agree that if the tranche will not pay very bad (or
as these gentlemen say, if in the wrong section incur in default), but recovery
some of the very regular and quite tranche of
relatively good, everything will go to pay Mortgages
tranche of relatively good, so that automatically
this tranche may be rated AAA.
3. (7 Comment: The "Comments from IESE
Economic Situation, January 2008, I've got most of what I'm saying
, we call this" financial magic ")
ii. To finish rolling to San Quirico, sorted
these MBS tranches were renamed as CDO (Collateralized Debt Obligations
, collateralized debt obligations), as they could have taken another name
exotic.
iii. Not content with this, the financial wizards created another product
important: CDS (Credit Default Swaps)
In this case, the purchaser, who bought the CDO, assuming a risk of default by the CDO
he bought, gaining more interest. So, bought the CDO
and said, "if it fails, I lose money. If no failure, plus interest payment. "
iv. Following inventions, created another
instrument, the Synthetic CDOs, which have not fully understood, but profitability was
surprisingly high. V.
Moreover, those who bought the CDO Synthetic
could buy very cheap bank loans. The difference between these interests
very cheap and high yields of Synthetic
was extraordinarily profitable operation.
13. Coming here and hoping that ye not lost too much, I remember one thing
it is possible that you've forgotten, given the complexity of the operations described, that
everything is based on the ninjas pay their mortgages and that the
U.S. housing market continues to rise.
14. BUT: a.
In early 2007, U.S. home prices plummeted. B.
Many of the ninjas realized they were paying more than their house is now worth
and decided (or could not) continue to pay their mortgages. C.
Automatically, no one wanted to buy MBS, CDO, CDS, CDO and Synthetic
who already had failed to sell. D.
The entire assembly was sinking and one day, the Director of the Office of San Quirico
a neighbor called to tell him that good, that the money was gone, or, in
the best, had lost 60% of its value. E.
8 º Review: Go now to explain to the resident of San Quirico what the ninjas, the Bank
of Illinois and the Chicago Trust Corporation. You can not be explained by several reasons:
more importantly, because nobody knows where that money. And when I say nobody, I mean NOBODY
. F.
But things go further. Because no one-not-know the crap they have
Banks in the mortgage packages they bought, and as anyone knows,
Banks begin to not trust each other. G.
As they do not trust, when they need money and go to the interbank market, which is
where banks lend money to each other, or lend it or lend it
expensive. The interest to lend money to banks in the Euribor interbank
(Europe Interbank Offered Rate, or Interest rate offered
interbank market in Europe), a rate which, as you see in the word EURIBOR A 3
months of this Dictionary, has gone up (now beginning to fall.)
h. Thus, banks now have no money. Consequences: I.
noncredit ii. They do not give mortgages, so that Astroc,
Income Corporation, Colonial, etc., I start to go terribly wrong. And
shareholders who bought shares in these companies, they see that the contributions of these Societies
are falling sharply.
iii. The 12-month Euribor, which is the benchmark
of mortgages has been rising (see A 12-MONTH EURIBOR Word mark this
Dictionary), which makes the average English, which has a mortgage, start
sweat to pay monthly fees. (He has now begun to
down)
iv. As the banks have no money,
1. Sell \u200b\u200btheir holdings in
2. Sell \u200b\u200btheir buildings
3. Metamos campaigning for money, offering better conditions
v.
As people begin to feel squeezed by the
mortgage payment, unless the Court is English.
vi. As the English Court notices, unless the purchase socks manufacturer
Mataró, not the ninja knew existed.
vii. The sock manufacturer thinks that as
sell less sock, starts to staffing and fire a few.
viii. And this is reflected in the unemployment rate, mainly
Mataró, where people start to buy less in
stores.
15. This is a dictionary of words. What happens is that the word "Crisis 2007-2008 "
is very serious. The title is misleading, considering that the crisis will end in 2008.
Now comes another question: "How long will this last?
16. Well, good question, too. very difficult to answer, for several reasons: a.
Because it is still not know the extent of the problem (the numbers vary from 100,000 to 500,000 million dollars
)
b. Because no one knows who is affected. It is not known if my bank, that of the whole life
, Banco serious and tradition in the area, has a lot of crap on the Assets. The trouble is that
my bank does not know. C.
When, in America, mortgage defaults by ninja go running or
is, banks can sell foreclosed houses for the price it is, something worth
MBS, CDO, CDS and even Synthetic. D.
Meanwhile, no one trusts anyone.
17. 9 º Review:
a. Someone has described this as "big scam"
b. Others have said that the Crash of 29, compared to this, is a game of girls in the playground
a nunnery
c. Enough, perhaps many, have been enriched with the bonus that have been growing.
Now, they lose their jobs, but the bonus will be saved somewhere, perhaps in a closet
shielded, which may be where more secure and protected from
other financial innovations that can happen to anyone. D.
The financial authorities have a major responsibility for what happened.
Basel Standards, theoretically designed to control the system, have stimulated
SECURITISATION to extremes able to obscure and complicate greatly
markets that are intended to protect. E.
The Boards of Directors of financial institutions involved in this great
fiasco, have a great responsibility, because they have not heard anything. And there
included the Board of Directors of the Savings Bank of San Quirico. F.
Some rating agencies have been incompetent or
independently of its customers, which is very serious
18. End of story (for now): the main central banks (European Central Bank, the U.S. Federal Reserve
) have been injecting cash flow for banks to have money
.
19. Some experts say yes than no money, but what is missing is confidence. That is,
the liquidity crisis is not a real crisis of trust of others.
20. Meanwhile, sovereign funds, or mutual funds created by
States with funds from the surplus in their accounts (mainly from oil and gas
) as Funds Arab Emirates, Asia, Russia, etc., are
buying stakes in U.S. banks important to extract
jam that has penetrated.
0 comments:
Post a Comment