Word: defaulters
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...then-University President Lawrence H. Summers inked the deal with Citibank to provide loans for the University’s graduate students, with both institutions sharing the financial risk. Three years later, given the exceptionally low default rate on the program, Citibank agreed to underwrite all financial responsibility for the loans...
...hard time raising this equity under current circumstances. The government needs to provide equity. In return, it should have voting stakes in the banks it helps. But equity injections also bail out bondholders. Right now the market is discounting these bonds, saying there is a high probability of default. There needs to be a forced conversion of this debt to equity. If this is done, the amount of government assistance that will be required will be much reduced...
...Moreover, while the subprime mortgage crisis may have initiated the current global credit meltdown, it has been eclipsed by the credit crunch it created. The $11 trillion mortgage market may be small potatoes compared with the problems in the $60 trillion market for credit default swaps. "The systematic issues have come to dominate the discussion because it is not about who is behind on their mortgage anymore," says Ann Rutledge, co-founder of R&R Consulting, which helps investment firms value complex mortgage securities. "What we are worried about is the viability of our financial system...
...expanded too fast in the rush to catch China's economic wave. As the global economy slows, that's likely to become a familiar refrain - and as a result, lenders are increasingly scrutinizing their customers' balance sheets and cash-flow statements for signs of stress that could lead to default. One Hong Kong businesswoman, who asked not to be named for fear of alarming already jittery creditors, says her bankers recently descended on her office to examine the books. "Next year will be the true test for a lot of companies," she predicts. "If there's no fresh money, there...
Recent events have demonstrated, though, that rampant globalization has outpaced intellectual and political innovation. Exotic investment instruments like credit-default swaps and collateralized debt obligations have eluded meaningful monitoring, baffled regulators and investors alike and raised hob with markets worldwide. What is now manifestly needed is a round of creative institutional invention like what the New Deal gave us. Then history will have repeated itself neither as tragedy nor as farce but as common sense and consequential reform...