
By Brendan Moynihan
An in-depth examine the failure of Wall Street's "proven" monetary types Origami is the japanese artwork of folding paper into problematic and aesthetically appealing shapes. As such, it's the ideal metaphor for the Wall road monetary engineering version, which eventually proved to be the underlying explanation for the 2008 monetary challenge. In monetary Origami, Brendan Moynihan describes how the Wall highway enterprise version developed from a mode to move possibility right into a technique for production probability. alongside the way in which, this well timed e-book skillfully dissects monetary engineering and addresses how it's frequently a mechanism to keep away from regulatory constraints, offer institutional traders with custom-made items, and, in fact, generate profit for monetary engineers.
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Extra resources for Financial Origami: How the Wall Street Model Broke
Sample text
Wall Street, however, has a long history of taking a good idea and running it into the ground. The process can be described in this schematic: (1) Rules, (2) Refold, (3) Rave, (4) Ruin. The rules or regulations in stage one can be in place, be imposed, or be relaxed. In stage two, responding to incentives from stage one, innovators refold the existing core or derivative products into new ones in order to solve a client problem or to skirt the rules or to take advantage of new standards, but in any event to make money.
The Fed approved the applications, which converted the investment banks into commercial banks subject to Fed regulation. The Wall Street business model had broken. To grasp the magnitude of how things changed in September 2008, consider the following: Lehman, the oldest bulge-bracket securities firm on Wall Street, filed the biggest bankruptcy in history after Bank of America and Barclays Plc pulled out of talks to buy the New York–based investment bank. S. S. brokerage firm. S. money-market fund, Reserve Primary Fund, broke the buck after writing off $785 million of debt issued by the bankrupt Lehman.
Securitizing mortgages enabled banks to tap investors rather than just savers. Banks channeling savings into mortgage loans could only offer as much of the latter as it gathered of the former. Moreover, the banks had to hold the mortgages until they were paid off. The SPE was set up specifically to carry out the pass-through task and got from investors the money to buy the mortgages, similar to the way mutual funds operate. Individual investors and institutional investors could now earn the interest rates previously available only to banks and S&Ls.