The Derivatives That Sunk Banks In The Global Crisis

Mortgage-backed securities played a significant role in the Global Financial Crisis of 2008. These securities had attractive interest rates and were given next to perfect ratings by credit rating agencies such as Moodys and Standard and Poor. Large amounts of funding were put into the housing market through the mortgage backed securities and this funding became a cycle. People were looking to buy homes so mortgage companies sold mortgages to banks, which led to banks packaging the mortgages with other investments, and the mortgage-backed securities were sold to investors. The investors’ money created more money for mortgage lenders to offer. 

Since lenders were contributing funds to subprime mortgages, people who have lower credit scores, many of these homeowners began to default on their mortgage payments. In April of 2007, New Century, a U.S. Financial Mortgage Corporation, filed for bankruptcy because of poor mortgage lending decisions. Soon after, Countrywide, the largest U.S. subprime mortgage lender, filed for bankruptcy. Following these two mortgage lenders filing for bankruptcy, U.S. banks’ balance sheets decreased.

While subprime mortgages and mortgage back securities were instruments that …

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Options Trading Ireland, Susan Hayes talks to Karl Deeter about Options

Susan Hayes – Options Trading Ireland, talking to Karl Deeter of Irish Mortgage Brokers from Irish Mortgage Brokers on Vimeo.

We were delighted to have Susan Hayes of Options Trading Ireland (and The Positive Economist) come by for a chat about options trading, what it is and how it works, in the video Susan uses her trademark ‘no nonsense’ approach to explain options in clear and concise English so that even the likes of Karl can understand it. Well worth watching, if you want to contact Susan you can reach her at either of her websites which are in the links above.

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Credit Default Swaps

This is an interesting clip about Credit Default Swaps and how they work, CDS’ are something that have been mentioned more and more in the papers and they are are derivatives market product.

Sometimes these words get bandied about like everybody should know what they are about, the truth is not everybody is a finance nerd and getting some simple examples is probably the best way to come to grips with these concepts, enjoy!

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Hedgefunds agree that more transparency is required

Hedge funds, often portrayed as murky operations managing billions upon billions and working offshore with managers earning €100,000,000 a year. The truth is a little different, like in any industry the very top people make exceptional livings doing what they do, the average hedge fund is based around people working hard, and trying to ‘hedge’ their bets, or the bets of their clients.

However, this week at a hearing on the Hill, while being grilled by Congress they agreed that they “see the benefits greater transparency can bring to maintaining stable economies and a healthy global financial system”. It is probably worth talking about hedgefunds and what they do.

The concept is relatively simple, you buy long and short positions. ‘Long’ means that you buy it because its a good stock, or it has good dividend or it is undervalued etc. it is based on the same traditional reason you would buy any stock. ‘Short’ is the reverse, you can buy and sell shares, you can also sell and then buy, …

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