Word: cdos
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...shouldn't have - chiefly subprime home mortgage loans. Now they're having to write off the losses, and some of them no longer have enough capital (money available to cover losses) to get by. Complicating matters for both outsiders and Wall Streeters is the alphabet soup of derivative securities (CDOs and CDSs in particular) that now trade in far greater volumes than stocks. It's the interaction of derivatives markets, debt markets and the housing market that has proved almost impossible to get a grip...
...proposals or universal-health-care plan. He would end earmarks and stop "waste, fraud and abuse" to recoup hundreds of millions. But it's unclear how. The former budget stickler has proposed costly tax cuts, but his spending cuts don't add up. REGULATION Unregulated Wall Street products like CDOs contributed to the financial crisis. How would the candidates change regulation in the financial industry? He calls for "a 21st century regulatory framework" based on six principles to improve government oversight, including extending the Fed's purview and tightening regulation of mortgage companies. He talks about "removing regulatory ... impediments...
...dramatic success either. Then came trouble, which spread from subprime mortgages to financial markets in general in August 2007. The chief connection was that subprime loans - those sold to less qualified borrowers - were purchased and repackaged by Wall Street into supposedly low-risk investment products called collateralized debt obligations (CDOs). When shaky borrowers began defaulting en masse on their mortgages, the whole scheme unraveled...
...President's Working Group on Financial Markets, an inter-agency collection of regulators led by Paulson, had actually been looking into potential problems with hedge funds and derivatives. But they missed CDOs. Paulson terms the oversight "obvious after the fact." Not so, say some observers. "I've got a lot of respect for Paulson and his credentials," says Glenn Hubbard, who was chairman of the President's Council of Economic Advisers in the early Bush years and is now dean of Columbia Business School. "But this looks like the Fed and Treasury were lurching from crisis to crisis, when much...
...market then expanded into structured finance, such as CDOs, that contained pools of mortgages. It also exploded into the secondary market, where speculative investors, hedge funds and others would buy and sell CDS instruments from the sidelines without having any direct relationship with the underlying investment. "They're betting on whether the investments will succeed or fail," said Pincus. "It's like betting on a sports event. The game is being played and you're not playing in the game, but people all over the country are betting on the outcome...