Mind Over Market

Class Lecture Carey School of Business Johns Hopkins University Washington, D.C. Campus April 17, 2012 By Robert Stowe England For most Americans, a thick fog still shrouds the origins of the financial crisis. This is true despite the fact three years have past since the crisis burst on the scene in September 08 with the bankruptcy of Lehman Brothers. Finding the answer to what went wrong is what compelled me to write Black Box Casino. In the end, it was a detective story where even a list of important actors could run into the hundreds. At the center of origins of the crisis is a single industry – the mortgage industry. As senior writer for Mortgage Banking magazine since 1988, I have reported on the vast changes sweeping through the industry for more than two decades. We’ve come a long way. In the early 1990s, the mortgage industry was disciplined by the free market. It was flexible and innovative. New loan products would appear and market players would experime...

Remarks to the Real Estate Research Council of Southern California Kellogg Center at California State Polytechnic University, Pomona March 7, 2012 By Robert Stowe England For most Americans, a thick fog still shrouds the origins of what has turned out to be the worst financial crisis of modern times. Finding the answer to what went wrong is what compelled me to write Black Box Casino. At the center of origins of the crisis is a single industry – the mortgage industry. As senior writer for Mortgage Banking magazine since 1988, I reported on the vast changes sweeping through the industry for more than two decades. We’ve come a long way. In the early 1990s, the mortgage industry was disciplined by the free market. Risky products were priced to cover expected losses. When players miscalculated, they were soon out of business. Over time, however, the virtues of the mortgage market slowly failed and the market became an engine of toxic mortgages. By August ’07 the entire private sector side ...

How did Big Finance grow so powerful that its hijinks nearly brought down the global economy – and what hope is there for real reform with Washington politicians on Wall Street's payroll? Bill Moyers talks with authors Simon Johnson and James Kwak, two of the nation's most respected economic experts and authors of the new book 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown . To hear the segment, that ran Friday, April 16, click this link: http://www.pbs.org/moyers/journal/04162010/watch.html

AIG in a filing with the Securities and Exchage Commission has finally released a detailed list of the derivatives contracts covered by bailout funds provided in the fall of 2008 to AIG by the federal governement. The payouts went through AIG to holders of credift default swaps against underlying Collateralized Debt Obligations (CDOs) worth $62 billion. By Robert Stowe England January 30, 2010 American International Group, Inc. (AIG) released Friday a schedule of Collaterized Debt Obligation (CDO's) that were made public two days earlier by a release of the same information by Rep. Darrell Issa (R-CA). The list includes all the derivatives contracts in a federal bailout of AIG to make whole $62 billion in CDOs at big Wall Street firms and large banks around the globe who had purchased Credit Default Swaps from AIG as insurance against the CDO's. Many of the CDO's were loaded with mortgage-backed securities written on pools of mostly subprime loans. Under an agreement broker...

Goldman Sachs was a chief potential counterparty beneficiary of AIG's federal bailout after its brush with bankruptcy in September 2008, according to structured finance analyst Janet Tavakoli. Goldman held credit default swaps with AIG against toxic derivatives it had underwritten and held. AIG was exposed to other Goldman-underwritten toxic derivatives held by other counterparties. All this was kept a secret as Goldman successfuly persuaded the Feds to pay 100 cents on the dollar for AIG's contracts, when they were worth far less in the market. By Robert Stowe England November 10, 2009 At the time AIG faced collapse in September 2008, the insurer's largest exposure was $20 billion in transaction contracts with Goldman Sachs on mortgage derivatives undewritten by Goldman. This represented one third of AIG's $62 billion in credit derivatives exposure to market pricing risk. Indeed, AIG's exposure to Goldman Sachs was the key contributor to the systemic risk posed by ...

The performance of securitized assets will continue to deteriorate for commercial mortgage-backed securities (CMBS) into 2011 and possibly 2012, according to a new report by Moody's Investors Service. For residential mortgage-backed assets (RMBS), performance will decline into late 2010 or early 2011. The prospects for a recovery in securitization markets remain cloudy and depend on the bottoming of the housing market and the beginning of a decline in unemployment, the report concludes. When the markets return, a higher investor risk premium will mean a higher cost for securitizations. Demand by investors will be down significantly with the anticipated absence of the once-formidable special finance vehicle buyers of Collateralized Debt Obligations (CDOs). By Robert Stowe England MindOverMarket.blogspot.com September 15, 2009 “While there appears to be a glimmer at the end of the tunnel, it is still too early to interpret improvement or slowed deterioration in a particular sector as...

Watch CBS Videos Online Here is the text of the CBS News' 60 Minutes segment "Financial WMDs" that was broadcast August 30, 2009 The Bet That Blew Up Wall Street Steve Kroft On Credit Default Swaps And Their Central Role In The Unfolding Economic Crisis Note: This story was first published on Oct. 26, 2008. It was updated on Aug. 27, 2009. Anyone with more than a casual interest in why their 401(k) has tanked over the past year knows that it's because of the global credit crisis. It was triggered by the collapse of the housing market in the United States and magnified worldwide by the sale of complicated investments that Warren Buffett once labeled financial weapons of mass destruction. They are called credit derivatives or credit default swaps. As correspondent Steve Kroft first reported last fall, they are essentially side bets on the performance of the U.S. mortgage markets and some of the biggest financial institutions in the world - a form of legalized gambling ...

Congress should compel over-the-counter (OTC) derivatives dealers to publish monthly the pricing models they use or register the models with the Securities and Exchange Commission, says risk analyst Christopher Whalen. Such disclosure will, he contends, reduce the complexity of derivatives. Even so, an outright ban would work better to eliminate the "horrible damage" they have inflicted on the global financial system, he argues in responses to 33 questions submitted by the chairman and ranking member of a Senate panel following his testimony last month. In his answers to Senators' questions, Whalen also opposes the agreement between the New York Fed and the derivatives dealers to clear trades through the Intercontinental Exchange (ICE), a start-up he says is controlled by the banks and which shares half its profits with the banks. This agreement, while ostensibly putting in place a necessary clearinghouse mechanism, fails to run trades through an independent exchange, suc...