The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default. (Alan Greenspan)
DO YOU REMEMBER? (1)
RATING AGENCIES: BADLY OVERRATED – REGULATORS AND INVESTORS RELY TOO HEAVILY ON CREDIT RATINGS
May 16, 2002 | Oops ... where did the article go?
Pity The Poor Rating Agencies. They work their socks off trying to give sensible credit ratings to every financial instrument they are asked to assess. Now they are under attack: from countries that claim to have been unfairly downgraded (such as Japan, see article); from companies struggling to cope with adverse markets; and from investors alarmed at the speed with which triple-A names can sink to single-B. America's regulators are also, post-Enron, reviewing the top three agencies' quasi-official status, for anti-competitiveness and potential conflicts of interest.
Never, it seems, has so much been demanded of rating agencies—or expected of them. This week, Standard & Poor's created a stir when it announced a new definition of “core earnings” that would include items such as the estimated cost of stock options that companies prefer to leave out. The agencies' traditional work of rating debt securities has been further stretched to cover exotic structured-finance instruments devised by investment banks. Analysts at the top three agencies (S&P, Moody's Investors Service, and their smaller rival, Fitch) are hamstrung by their limited range of weaponry—the letters AAA to D (default)—and by old methodology that cannot adapt to the dynamics of the newest financial instruments.
Take today's craze for collateralised debt obligations (CDOs). CDOs are a way of taking a bundle of credit risks and slicing them into layers that carry different levels of risk. Sophisticated investors may be able to assess these risks themselves. But most are guided by the ratings assigned to each slice by the agencies. (The lowest slice is usually left unrated.)
A rating too far
These portfolios soon take on a life of their own, as the agencies have discovered. Many are actively managed: some debt matures or defaults and must be replaced; collateral deteriorates and must be topped up. Rating agencies recognise that the value of a managed CDO depends as much on the quality and behaviour of the asset manager as it does on the underlying credits. So they are being forced to become raters of asset managers, as much as cold assessors of the underlying assets.
This is just one example of how ratings have moved beyond the concept of a simple benchmark. What makes matters worse is that the use of ratings as absolute measures, by investors and by regulators, is increasing not decreasing.
For 30 years, the Securities and Exchange Commission (SEC) has used ratings by “nationally recognised” agencies to assess the value of securities held by securities firms, and the amount of capital they must hold. Many investment institutions must by charter put most or all of their money into instruments that are investment-grade—between AAA and BBB-. Many loan agreements and issues of debt securities now include ratings triggers: if there is a downgrade, the interest rate is increased, or sometimes the debt must be repaid immediately. The consequences of a simple downgrade can thus be devastating for a company. Downgrades of major companies or countries to below investment-grade also tend to trigger a sell-off by investors whose charter stops them from holding such assets.
The use of ratings as absolute measures, by investors and by regulators, is increasing not decreasing
Credit ratings are about to acquire even wider influence. Under the new Basel proposals for banks' capital requirements, to be applied by 2006, ratings may be used to assess the riskiness of a bank's entire portfolio. Banks are being encouraged to use their own internal rating systems, but the benchmark will tend to be that of officially recognised rating agencies. The scope for playing games, and cherry-picking the most favourable ratings, will increase, and may even come to dominate banks' risk-management decisions.
The shellgame played around CDOs should be enough to alert investors and regulators to a looming danger. To construct CDOs, investment banks work intensively with rating agencies to achieve investment-grade ratings for the top tranches, without which they cannot be sold to a wide range of investors. CDOs are created from existing debt: no new debt is involved. So the market has already bought this stuff once before. Why are millions of dollars being made in fees and dealing spreads by simple repackaging?
One answer is that new players, such as insurance companies, are joining the game. But an even simpler answer is that it is a game of rating arbitrage. If the ratings did not carry such weight with regulators, and in fund-management mandates, neither would the shifting of assets from one rating grade to another. “How can you repackage and apparently add such value?” asks Con Keating of the Finance Development Centre in London. “The arbitrage does not go away.”
Accelerating downgrades are beginning to dent the CDO ratings' credibility (see chart). All three agencies put huge resources, legal and technical, into an independent analysis of these structures. But they are under pressure from issuers and banks to deliver a high rating for as much of the pool as possible. Is there a conflict of interest? Potentially, yes: the bankers, or their issuing clients, pay the rating agencies, yet the agencies are supposed to represent the interests of investors.
Rating agencies respond that they would do nothing to jeopardise their greatest asset, which is their reputation. Indeed, the agencies, argues Steven Schwarcz, a professor at Duke University, Illinois, are more likely to have a conservative bias than an innovative one, because of reputation risk. Yet reputation risk did not stop Andersen's audit failings at Enron.
How accurate are ratings, anyway? Some analysis suggests that bond ratings, at least, have a good record. But plenty of sovereign and corporate creditors, having seen their assets caught by untimely downgrades, disagree. There is some evidence of a growing divergence between credit spreads and credit ratings. Yet the three rating agencies are so entrenched that they are part of the market fabric.
At a Senate hearing on rating agencies in Washington on March 20th, Mr Schwarcz pointed to the difficulty of getting anybody else, besides the issuer of securities, to pay rating agencies. Payment by regulators would be expensive; payment by investors would mean identifying them before the securities are sold. The SEC has other regulatory concerns. Recognised rating agencies have responsibilities under the Investment Advisers Act of 1940, but there is no regulation governing the quality or reliability of their ratings. That there are only three recognised rating agencies in America, and thus in effect in the global capital markets, may make them less aggressive at “ferreting out the truth”, worries Mr Schwarcz.
For a mere three rating agencies to guard their reputation “all they need is relative strength,” says Mr Keating. He cites the examples of Enron and South Korea, when the ratings of all three agencies badly lagged events. “That doesn't help us against systemic risk.”
Regulating the rating agencies would be expensive and not necessarily an improvement. Better might be the opposite: reducing the reliance on ratings for regulatory purposes. That would encourage new entrants and new methodologies to address the shortcomings of the big three. Competitors that have sprung up in the past have too often been gobbled: KMV, a Californian rating firm, was acquired recently by Moody's. Investors should also learn, not least from the CDO experience, that ratings, like investment-bank research, can never be a substitute for independent analysis and due diligence.
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SEC PLEDGES OVERHAUL OF RATING AGENCIES
January 25, 2003 | Oops ... where did the article go?
THE SECURITIES AND EXCHANGE COMMISSION ON FRIDAY PLEDGED A SWEEPING OVERHAUL of the regulation of credit rating agencies following criticism of their role in the collapse of Enron and the crisis in the telecommunications industry.
The chief US financial regulator said a review of the credit rating business had "identified a wide range of issues that deserve further examination".
Critics of the agencies have demanded that the business be opened to competition. Further pressure came on Friday from Europe's top financial watchdog, who said the financial markets had become too reliant on the opinions of the three agencies officially recognised by the SEC.
The business is controlled by three agencies - Standard & Poor's, Moody's Investors Service and Fitch Ratings. They are the only agencies that have been granted the SEC's lucrative NRSRO national recognition, which makes them the official arbiters of credit quality and allows them to dominate the business.
Sir Howard Davies, chairman of the UK's Financial Services Authority, said at the World Economic Forum in Davos that this restriction should be lifted and that the participants in the credit rating business should "stand on their own feet".
In a submission to Congress, a copy of which has been obtained by the Financial Times, the SEC said it would "explore whether there are viable alternatives to the NRSRO concept". It also said it would consider opening the ratings business to other participants beyond the main three.
The submission appears to address all the key areas identified by critics as problems. These include allegations, voiced by independent rating agencies such as Egan-Jones Ratings, of conflicts of interest that arise when companies pay for ratings, which are opinions of a company's or government's creditworthiness.
Pressure for change was intensified by the Sarbanes-Oxley Act that was passed after a series of spectacular corporate collapses last year.
The SEC said in the submission that it would seek the views of the financial services industry before drawing up specific recommendations for changes to the ratings business.
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RATING AGENCIES – EXCLUSION ZONE
February 6, 2003 | Oops ... where did the article go?
REGULATORS PROMISE A BELATED REVIEW OF THE RATINGS OLIGOPOLY. THE domination of any industry by three firms ought to set regulators thinking. Does their power distort markets? Is lack of competition damaging? So it is in the world of credit ratings, where two big agencies, Moody's and Standard & Poor's (S&P), and one smaller one, Fitch, hold sway. The Securities and Exchange Commission (SEC) was asked by Congress last year to review their role.
At the end of March the SEC will publish a paper that attempts to deal with concerns not only about competition in the rating business, but also about possible conflicts of interest, and the need for greater transparency and perhaps tighter regulation. Don't hold your breath. The world is awaiting the SEC's conclusions from a similar initiative begun in 1997.
If there is a lack of competition, the SEC is largely to blame. Only the three top agencies enjoy the status of “nationally recognised statistical rating organisation” (NRSRO), awarded by the commission. Some others have applied in vain, because the SEC will not divulge the criteria for election to this exclusive club. Since 1975, when NRSRO status was invented, the chosen few have thrived in their protected market—and taken over any newcomers that achieved NRSRO status.
The agencies' status and the way capital markets have evolved have given their ratings a semi-official authority. Many investors use their ratings of issues of securities as an inflexible investment criterion. Some investors, such as pension funds, may not buy assets rated below a certain level. Rating downgrades or upgrades are often used as a contractual signal of a borrower's creditworthiness: a downgrade can trigger a demand for more collateral, a higher rate of interest on a loan or bond, or even an immediate repayment of debt.
Some fear this can create a cliff down which a hard-pressed borrower can quickly tumble. When many borrowers run into trouble at the same time, changes in ratings can stoke up volatility, and precipitate liquidity crises and even defaults. The crises can be more sudden and unexpected if the existence of a “rating trigger” is not publicly known. Rating agencies have recently begun to take account of such triggers.
The use and abuse of ratings
Just as troubling is the increasing use of ratings, not just to appraise securities but also as a motive for their creation and marketing. Nowhere is that truer than in so-called structured products—bundles of assets sliced into different layers of expected risk and return. The selection and slicing are done in close discussion with a rating agency, so that each slice is awarded the appropriate rating. Then the slices are sold to investors with appetites for each grade.
Even some market participants agree that this is putting the cart before the horse. Assets tend to be selected to conform with agencies' credit ratings and measures of diversification. The trouble is that ratings, which in S&P's terminology range from AAA to BBB- (for investment-grade credits) and below that from BB+ to D (for default) are not as finely graded as market judgments of creditworthiness. Of two credits rated B, one could be a healthy company; the other could be close to default.
The temptation, when manufacturing a structured security, has been to stuff cheaper (and riskier) assets in each rating class into the portfolio. This has sometimes meant fun and games for traders, who have been able to arbitrage between assets carrying different risks but the same rating. Managers of these pools of assets have played similar games between rated and unrated slices. It seems that the agencies may have been rating what cannot be rated, at least with their existing crude toolkits. They have had problems in recent months in their traditional business, downgrading the debt of once-great companies. Not surprisingly, their ratings of the new exotica have also had to be adjusted often (see chart).
“We may be incompetent,” says one rating-agency veteran, “but we're not dishonest.” Certainly, no equivalent of Jack Grubman or Henry Blodget has been unmasked among the ranks of rating analysts. Rating agencies have long insisted that their greatest asset is their reputation. Even their failure to spot the impending bankruptcies of Enron, WorldCom and Global Crossing until seconds before their default has been blamed not on lack of integrity, but on lack of street wisdom.
Ratings are a handy benchmark for the buy-and-hold investor, but not necessarily for the trader who has to react to the market mood. Unfortunately, by accident rather than by sinister design, ratings have become a driver for trading as well as investing in the capital markets.
The recognised status of the three main agencies and the real but invisible barriers to entry by others aggravate the problem. In 1997 the SEC proposed criteria for recognition; but since then it has given no guidance to applicants. One of these, Sean Egan, managing director of Egan-Jones Ratings Co, says that an SEC official told him: “We won't tell you the criteria, otherwise you might qualify.” Another complains that for years a single SEC bureaucrat has blocked progress on this issue.
Things are likely to get worse. Reforms of bank-capital rules by the Basel committee, known as Basel 2, due to come into force in January 2007, will require bank regulators to use agencies' ratings as a basic measure of the riskiness of a bank's credit portfolio. Other rating agencies may win recognition around the world by 2007, but the judgments of the big three are bound to predominate. A study by the Bank for International Settlements on credit-risk transfer, published last month, frets about the reduced incentive for banks to monitor their borrowers once securitised loan pools are rated.
The SEC has a responsibility, not just in America, to get its next steps right, because the big three's ratings cover the globe. It has already examined and rejected the solution of abolishing NRSRO status but said last month that it would explore “viable alternatives”. Regulators “should not be scared” of opening ratings totally to competition and accepting that agencies make mistakes, says a director of one recognised agency. If ratings became just another feature of the market, fears of distortion and a lack of competition should diminish.
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PARIS TO TARGET CREDIT RATING AGENCIES AT G7
May 1, 2003 | Oops ... where did the article go?
France Plans To Raise The Issue Of Regulating The International Credit Ratings Agencies with its partners in the Group of Seven industrial countries. The aim is to agree a set of principles with the ratings agencies to make them more transparent and accountable. The French finance ministry has already sounded out Moody's Investors Service, one of three big agencies that dominate the business.
The move follows rising concern at the agencies' growing influence in assessing the financial status of businesses and the impact of such assessments on investors and banks.
One French official said: "The rating agencies are one of the last areas in the whole financial industry which remain opaque and not really regulated."
Separately, the French association of corporate treasurers (AFTE) is in talks with rating agencies about a code of conduct.
Paul Taylor, group managing director at Fitch, the third largest agency, said a code was welcome but some issues, such as companies wanting to influence the timing of rating announcements, need more discussion.
Moody's said it was "not opposed" to consolidating its policies and procedures into a public document such as a code of conduct and it took the views of European regulators and government authorities "very seriously".
French finance ministry officials are anxious that the G7 register the fact that the rating agencies are privately-run profit oriented businesses that also risk conflicts of interest.
Similar concerns have been raised in the US, where the Securities and Exchange Commission will this month issue a report on concerns, including whether the agencies should disclose more information about their decisions.
Standard & Poor's, another of the big rating agencies, said it had made a great deal of effort to make policy, procedures, criteria and ratings actions wholly transparent and that it already held regular discussions with regulators around the world.
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PRESSURE ON CDO RATINGS
January 12, 2006 | Oops ... where did the article go?
The European Structured Finance Market Is Set To See Benign Or Improving Credit Ratings cross most market segments this year after the best ever year for upgrades in 2005, according to analysts at Standard & Poor's, the ratings agency.
The one area of continuing relative weakness in structured finance - which covers all kinds of asset-backed securitisations - would probably be in collateralised debt obligations, which in 2005 were hit by troubles in the US car industry and were likely to see ratings downgrades again this year.
"Looking to 2006, the outlook for corporate credit quality is mildly negative, which could put downward pressure on CDO ratings," said Simon Collingridge, head of surveillance at S&P.
He added that while CDO downgrades had accounted for the majority of negative ratings actions last year, the proportion of the CDO market to see downgrades was marginal at 3.9 per cent. This was far smaller than the more than 15 per cent seen in 2003 and the almost 25 per cent in 2002.
CDOs generally see ratings upgrades over their lifetimes as the probability of multiple defaults in the underlying assets declines. They face downgrades when one or more of the underlying instruments defaults or is downgraded.
Last year the credit downgrades to Ford and GM, the US carmakers, and the bankruptcy of Delphi, the parts supplier, caused problems because they were among the most widely referenced credits used to create CDOs.
Mr Collingridge said the growing prevalence of managed, rather than static, asset pools - where badly performing instruments can be removed - and increasing use of different kinds of assets would mitigate the risk of downgrades.
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CREDIT RATINGS INDUSTRY COMES UNDER ATTACK
March 7, 2006 | Oops ... where did the article go?
The Dominance Of The Credit Ratings Industry By A Handful Of Companies Was Attacked on Tuesday before the powerful Senate Banking Committee hearing in Washington.
The hearing followed calls for legislative action that began intensifying after the failures of the main ratings agencies to flag up problems at Enron, WorldCom and Parmalat. More recent examples include Delphi, the car-parts maker that went from an investment grade rating in December 2004 to bankruptcy in less than a year.
The Securities and Exchange Commission currently designates Nationally Recognised Statistical Rating Organisations using unspecified criteria. Only ratings supplied by an NRSRO are valid in the context of laws and regulations involving credit ratings, giving NRSROs huge influence.
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A SPECIAL REPORT ON FINANCIAL RISK: NUMBER-CRUNCHERS CRUNCHED – THE USES AND ABUSES OF MATHEMATICAL MODELS
February 11, 2010 | Oops ... where did the article go?
It Put Noses Out Of Joint, but it changed markets for good. In the mid-1970s a few progressive occupants of Chicago's options pits started trading with the aid of sheets of theoretical prices derived from a model and sold by an economist called Fisher Black. Rivals, used to relying on their wits, were unimpressed. One model-based trader complained of having his papers snatched away and being told to “trade like a man”. But the strings of numbers caught on, and soon derivatives exchanges hailed the Black-Scholes model, which used share and bond prices to calculate the value of derivatives, for helping to legitimise a market that had been derided as a gambling den.
Thanks to Black-Scholes, options pricing no longer had to rely on educated guesses. Derivatives trading got a huge boost and quants poured into the industry. By 2005 they accounted for 5% of all finance jobs, against 1.2% in 1980, says Thomas Philippon of New York University—and probably a much higher proportion of pay. By 2007 finance was attracting a quarter of all graduates from the California Institute of Technology.
These eggheads are now in the dock, along with their probabilistic models. In America a congressional panel is investigating the models' role in the crash. Wired, a publication that can hardly be accused of technophobia, has described default-probability models as “the formula that killed Wall Street”. Long-standing critics of risk-modelling, such as Nassim Nicholas Taleb, author of “The Black Swan”, and Paul Wilmott, a mathematician turned financial educator, are now hailed as seers. Models “increased risk exposure instead of limiting it”, says Mr Taleb. “They can be worse than nothing, the equivalent of a dangerous operation on a patient who would stand a better chance if left untreated.”
Not all models were useless. Those for interest rates and foreign exchange performed roughly as they were meant to. However, in debt markets they failed abjectly to take account of low-probability but high-impact events such as the gut-wrenching fall in house prices.
The models went particularly awry when clusters of mortgage-backed securities were further packaged into collateralised debt obligations (CDOs). In traditional products such as corporate debt, rating agencies employ basic credit analysis and judgment. CDOs were so complex that they had to be assessed using specially designed models, which had various faults. Each CDO is a unique mix of assets, but the assumptions about future defaults and mortgage rates were not closely tailored to that mix, nor did they factor in the tendency of assets to move together in a crisis.
The problem was exacerbated by the credit raters' incentive to accommodate the issuers who paid them. Most financial firms happily relied on the models, even though the expected return on AAA-rated tranches was suspiciously high for such apparently safe securities. At some banks, risk managers who questioned the rating agencies' models were given short shrift. Moody's and Standard & Poor's were assumed to know best. For people paid according to that year's revenue, this was understandable. “A lifetime of wealth was only one model away,” sneers an American regulator.
Moreover, heavy use of models may have changed the markets they were supposed to map, thus undermining the validity of their own predictions, says Donald MacKenzie, an economic sociologist at the University of Edinburgh. This feedback process is known as counter-performativity and had been noted before, for instance with Black-Scholes. With CDOs the models' popularity boosted demand, which lowered the quality of the asset-backed securities that formed the pools' raw material and widened the gap between expected and actual defaults (see chart 3).
A related problem was the similarity of risk models. Banks thought they were diversified, only to find that many others held comparable positions, based on similar models that had been built to comply with the Basel 2 standards, and everyone was trying to unwind the same positions at the same time. The breakdown of the models, which had been the only basis for pricing the more exotic types of security, turned risk into full-blown uncertainty (and thus extreme volatility).
For some, the crisis has shattered faith in the precision of models and their inputs. They failed Keynes's test that it is better to be roughly right than exactly wrong. One number coming under renewed scrutiny is “value-at-risk” (VAR), used by banks to measure the risk of loss in a portfolio of financial assets, and by regulators to calculate banks' capital buffers. Invented by eggheads at JPMorgan in the late 1980s, VAR has grown steadily in popularity. It is the subject of more than 200 books. What makes it so appealing is that its complex formulae distil the range of potential daily profits or losses into a single dollar figure.
Only so far with VAR
Frustratingly, banks introduce their own quirks into VAR calculations, making comparison difficult. For example, Morgan Stanley's VAR for the first quarter of 2009 by its own reckoning was $115m, but using Goldman Sachs's method it would have been $158m. The bigger problem, though, is that VAR works only for liquid securities over short periods in “normal” markets, and it does not cover catastrophic outcomes. If you have $30m of two-week 1% VAR, for instance, that means there is a 99% chance that you will not lose more than that amount over the next fortnight. But there may be a huge and unacknowledged threat lurking in that 1% tail.
So chief executives would be foolish to rely solely, or even primarily, on VAR to manage risk. Yet many managers and boards continue to pay close attention to it without fully understanding the caveats—the equivalent of someone who cannot swim feeling confident of crossing a river having been told that it is, on average, four feet deep, says Jaidev Iyer of the Global Association of Risk Professionals.
Regulators are encouraging banks to look beyond VAR. One way is to use CoVAR (Conditional VAR), a measure that aims to capture spillover effects in troubled markets, such as losses due to the distress of others. This greatly increases some banks' value at risk. Banks are developing their own enhancements. Morgan Stanley, for instance, uses “stress” VAR, which factors in very tight liquidity constraints.
Like its peers, Morgan Stanley is also reviewing its stress testing, which is used to consider extreme situations. The worst scenario envisaged by the firm turned out to be less than half as bad as what actually happened in the markets. JPMorgan Chase's debt-market stress tests foresaw a 40% increase in corporate spreads, but high-yield spreads in 2007-09 increased many times over. Others fell similarly short. Most banks' tests were based on historical crises, but this assumes that the future will be similar to the past. “A repeat of any specific market event, such as 1987 or 1998, is unlikely to be the way that a future crisis will unfold,” says Ken deRegt, Morgan Stanley's chief risk officer.
Faced with either random (and therefore not very believable) scenarios or simplistic models that neglect fat-tail risks, many find themselves in a “no-man's-land” between the two, says Andrew Freeman of Deloitte (and formerly a journalist at The Economist). Nevertheless, he views scenario planning as a useful tool. A firm that had thought about, say, the mutation of default risk into liquidity risk would have had a head start over its competitors in 2008, even if it had not predicted precisely how this would happen.
To some, stress testing will always seem maddeningly fuzzy. “It has so far been seen as the acupuncture-and-herbal-remedies corner of risk management, though perceptions are changing,” says Riccardo Rebonato of Royal Bank of Scotland, who is writing a book on the subject. It is not meant to be a predictive tool but a means of considering possible outcomes to allow firms to react more nimbly to unexpected developments, he argues. Hedge funds are better at this than banks. Some had thought about the possibility of a large broker-dealer going bust. At least one, AQR, had asked its lawyers to grill the fund's prime brokers about the fate of its assets in the event of their demise.
Some of the blame lies with bank regulators, who were just as blind to the dangers ahead as the firms they oversaw. Sometimes even more so: after the rescue of Bear Stearns in March 2008 but before Lehman's collapse, Morgan Stanley was reportedly told by supervisors at the Federal Reserve that its doomsday scenario was too bearish.
The regulators have since become tougher. In America, for instance, banks have been told to run stress tests with scenarios that include a huge leap in interest rates. A supervisors' report last October fingered some banks for “window-dressing” their tests. Officials are now asking for “reverse” stress testing, in which a firm imagines it has failed and works backwards to determine which vulnerabilities caused the hypothetical collapse. Britain has made this mandatory. Bankers are divided over its usefulness.
Slicing the Emmental
These changes point towards greater use of judgment and less reliance on numbers in future. But it would be unfair to tar all models with the same brush. The CDO fiasco was an egregious and relatively rare case of an instrument getting way ahead of the ability to map it mathematically. Models were “an accessory to the crime, not the perpetrator”, says Michael Mauboussin of Legg Mason, a money manager.
As for VAR, it may be hopeless at signalling rare severe losses, but the process by which it is produced adds enormously to the understanding of everyday risk, which can be just as deadly as tail risk, says Aaron Brown, a risk manager at AQR. Craig Broderick, chief risk officer at Goldman Sachs, sees it as one of several measures which, although of limited use individually, together can provide a helpful picture. Like a slice of Swiss cheese, each number has holes, but put several of them together and you get something solid.
Modelling is not going away; indeed, number-crunchers who are devising new ways to protect investors from outlying fat-tail risks are gaining influence. Pimco, for instance, offers fat-tail hedging programmes for mutual-fund clients, using cocktails of options and other instruments. These are built on specific risk factors rather than on the broader and increasingly fluid division of assets between equities, currencies, commodities and so on. The relationships between asset classes “have become less stable”, says Mohamed El-Erian, Pimco's chief executive. “Asset-class diversification remains desirable but is not sufficient.”
Not surprisingly, more investors are now willing to give up some upside for the promise of protection against catastrophic losses. Pimco's clients are paying up to 1% of the value of managed assets for the hedging—even though, as the recent crisis showed, there is a risk that insurers will not be able to pay out. Lisa Goldberg of MSCI Barra reports keen interest in the analytics firm's extreme-risk model from hedge funds, investment banks and pension plans.
In some areas the need may be for more computing power, not less. Financial firms already spend more than any other industry on information technology (IT): some $500 billion in 2009, according to Gartner, a consultancy. Yet the quality of information filtering through to senior managers is often inadequate.
A report by bank supervisors last October pointed to poor risk “aggregation”: many large banks simply do not have the systems to present an up-to-date picture of their firm-wide links to borrowers and trading partners. Two-thirds of the banks surveyed said they were only “partially” able (in other words, unable) to aggregate their credit risks. The Federal Reserve, leading stress tests on American banks last spring, was shocked to find that some of them needed days to calculate their exposure to derivatives counterparties.
To be fair, totting up counterparty risk is not easy. For each trading partner the calculations can involve many different types of contract and hundreds of legal entities. But banks will have to learn fast: under new international proposals, they will for the first time face capital charges on the creditworthiness of swap counterparties.
The banks with the most dysfunctional systems are generally those, such as Citigroup, that have been through multiple marriages and ended up with dozens of “legacy” systems that cannot easily communicate with each other. That may explain why some Citi units continued to pile into subprime mortgages even as others pulled back.
In the depths of the crisis some banks were unaware that different business units were marking the same assets at different prices. The industry is working to sort this out. Banks are coming under pressure to appoint chief data officers who can police the integrity of the numbers, separate from chief information officers who concentrate on system design and output.
Some worry that the good work will be cast aside. As markets recover, the biggest temptation will be to abandon or scale back IT projects, allowing product development to get ahead of the supporting technology infrastructure, just as it did in the last boom.
The way forward is not to reject high-tech finance but to be honest about its limitations, says Emanuel Derman, a professor at New York's Columbia University and a former quant at Goldman Sachs. Models should be seen as metaphors that can enlighten but do not describe the world perfectly. Messrs Derman and Wilmott have drawn up a modeller's Hippocratic oath which pledges, among other things: “I will remember that I didn't make the world, and it doesn't satisfy my equations,” and “I will never sacrifice reality for elegance without explaining why I have done so.” Often the problem is not complex finance but the people who practise it, says Mr Wilmott. Because of their love of puzzles, quants lean towards technically brilliant rather than sensible solutions and tend to over-engineer: “You may need a plumber but you get a professor of fluid dynamics.”
One way to deal with that problem is to self-insure. JPMorgan Chase holds $3 billion of “model-uncertainty reserves” to cover mishaps caused by quants who have been too clever by half. If you can make provisions for bad loans, why not bad maths too?
DO YOU REMEMBER? (8)
MORE WRONGDOING AT BANKS, MORE SWINGEING FINES, NO PROSECUTIONS
May 23, 2015 | Oops ... where did the article go?
The Scene Was Familiar: Regulators Meting Out Vast Penalties To Banks, Scathing Statements About Gross Misconduct, yet no individuals charged with any crimes and some confusion as to what exactly the banks were admitting to and what effect that would have. On May 20th a consortium of American and British government agencies announced settlements with six international banks regarding claims that they had manipulated currency markets. The six—Bank of America, Barclays, Citigroup, JPMorgan Chase, Royal Bank of Scotland (RBS) and UBS—agreed to pay $5.6 billion in penalties. All but Bank of America also admitted to crimes, although the significance of that is unclear.
The settlement is the culmination of a long investigation into perhaps 20 employees of the banks, who referred to themselves as the “cartel”. Between 2007 and 2013 they used coded communication in an online chat room to help one another make money, especially by rigging the two daily “fixes” of the exchange rate between the dollar and the euro, violating rules on market manipulation and collusion. As one of them wrote in a chat session, “If you aint [sic] cheating, you aint trying.”
UBS was spared a guilty plea in the currency scandal because it was the first bank to report the suspicious conduct to the authorities. But this is its second “non-prosecution agreement”: three years ago it paid $1.2 billion to American authorities looking into claims that it had manipulated LIBOR, a benchmark interest rate. That deal was dependent on UBS not doing anything else wrong. Its conduct in the currency case has prompted the Department of Justice to tear up the LIBOR deal. The main consequence is yet another fine, of $203m—small beer compared to the $87 billion in similar penalties big banks paid last year (see chart). UBS is also admitting to a crime tied to LIBOR, but that is apparently meaningless: it says the deal “will have no financial impact” on its results.
Admitting to criminal behaviour in America was once a guarantee of bankruptcy. That, at any rate, was the fate of big names such as Drexel Burnham Lambert, an investment bank, and Arthur Andersen, an accountancy firm, which had to shut up shop after losing both operating licences and clients that were restricted from doing business with felons. Yet the Department of Justice and other regulators seem to have magicked this consequence away.
Credit Suisse, another multinational bank, admitted to criminal charges related to its clients’ tax evasion last year, but received waivers from various regulators that allowed it to stay in business. Loretta Lynch, the attorney general, claimed it was up to those regulators to decide whether to do the same this time. “It is thought that the required waivers have been obtained but this is not certain,” wrote Richard Bove of Rafferty Capital Markets, a brokerage, reflecting the confusion.
Private lawsuits will follow. Currency trading is a vast business, with $500 billion exchanged daily in the dollar-euro market. The manipulation may have been transient, but the number of people affected is huge. A group of investors has already struck a $394m deal with Citigroup. There are many more settlements to come.
DO YOU REMEMBER? (9)
THE CREDIT RATING CONTROVERSY
June 29, 2015 | Oops ... where did the article go?
The "Big Three" Global Credit Rating Agencies—U.S.-based Standard and Poor's (S&P), Moody's, and Fitch Ratings—have come under intense scrutiny in the wake of the global financial crisis. (..) In Europe, the Big Three garnered further controversy over their sovereign debt ratings. While the public debt of crisis-hit countries like Greece, Portugal, and Ireland was relegated to “junk” status, the agencies also downgraded the creditworthiness of France, Austria, and other major eurozone economies. (..).
The Role of Credit Rating Agencies: Credit rating agencies are meant to provide global investors with an informed analysis of the risk associated with debt securities. These securities include government bonds, corporate bonds, certificates of deposit (CDs), municipal bonds, preferred stock, and collateralized securities, such as collateralized debt obligations (CDOs) and mortgage-backed securities. The riskiness of investing in these securities is determined by the likelihood that the debt issuer—be it a corporation, bank-created entity, sovereign nation, or local government—will fail to make timely interest payments on the debt. (..)
Industry Structure: 'Issuer Pays' vs. 'Subscriber Pays': Most criticism of credit raters centers on the "issuer pays" model—employed by each of the Big Three—whereby a bond's issuer pays the rating agencies for the initial rating of a security, as well as ongoing ratings. The public (and investors) can then access these ratings free of charge. The popularity of this model grew in the 1970s, following years of "subscriber pays" dominance, in which investors paid for the ratings instead. Issuers, who needed certain ratings in order to sell their bonds to regulated financial institutions, may have been more willing to pay for these services than investors were, according to a 2010 OECD report. (..)
Role in the Financial Crisis: In 2008, at the height of the global financial crisis, rating agencies were accused of misrepresenting the risks associated with mortgage-related securities. Critics alleged that they created complex but unreliable models to calculate the probability of default for individual mortgages as well for the securitized products created by bundling these mortgages. Raters deemed many of these structured products top-tier AAA material during the housing boom, only to sharply downgrade them when the housing market collapsed. In 2007, as housing prices began to tumble, Moody's downgraded 83 percent of the $869 billion in mortgage securities it had rated at the AAA level in 2006. (..)
Impact on the Eurozone Crisis: In Europe, the criticism has focused on sovereign debt rather than private mortgage securities. EU governments and ECB policymakers accused the Big Three of being overly aggressive in rating eurozone countries’ creditworthiness, exacerbating the financial crisis. They argue that the unduly negative evaluations accelerated the European sovereign debt crisis as it spread through Greece, Ireland, and Portugal, and Spain—all of which received EU-IMF bailouts. S&P's April 2010 decision to downgrade Greece's debt to junk status weakened investor confidence, raised the cost of borrowing, and made a financial rescue package in May 2010 all but inevitable. (..)
Unprecedented Downgrade: In the eyes of many Europeans, the Big Three show preferential treatment to the United States, which long maintained a AAA rating despite a growing deficit and increasingly high levels of public debt. However, on August 5, 2011, S&P downgraded the U.S. credit rating for the first time in history. The move, lowering U.S. debt to AA+, came after weeks of congressional wrangling over the deficit and debt ceiling. The eventual deal to avert a default did not, in the opinion of S&P, implement adequate measures to reduce the U.S. deficit over the next ten years. (..)
Regulating the Rating Agencies: Critics of the Big Three in the United States and Europe have long voiced concern that the monopolization of the sector by these agencies has created an uncompetitive environment that leaves investors with few alternatives. In 1975, the SEC began choosing which raters could be used to determine the minimum capital levels required for financial firms to trade certain debt securities, depending on their riskiness. The three raters initially chosen—S&P, Moody's, and Fitch—were deemed "nationally recognized statistical rating organizations," or NRSROs. Though the SEC has added more rating agencies to the list over the years, the original three have maintained their dominant positions. (..)
(WHO) DO YOU UNDERSTAND(S) HOW STOCK MARKETS AND THE FINANCIAL INDUSTRY WORK?
AI in Financial Trading[1] – Financial Stability[2] – Systemic Risk[3] – Rating Agencies[4] – Money as Debt[5] – Debt Equity Swap[6] – Global (Mutual) Indebtment[7] – Shadow Banking[8] ––– Ethically Disputed Business Practices[9] of Creative Finance: Off-Balance-Sheet Financing[10] – Off-Balance-Sheet Entities[11] – Single Purpose Vehicle[12] – Third-Party Technique[13] – Private Public Partnerships[14] – Articles Of Incorporation[15] – Asset-Backed-Securities[16] – Bearer Security[17] – Collateral[18] – Defeasance[19] (related: Off-Balance[20]) – Equipment Certificate Trust[21] – Exchange Of Assets[22] (related: Nine Men's Morris[23]) – Financial Leverage[24] (related: Gearing[25]) – Golden Parachute[26] – Interval Measures[27] – Leveraged Buy-Out[28] – Leveraged Lease[29] – Macrs (Modified Accelerated Cost Recovery System)[30] – Monte Carlo Simulation[31] – Novation[32] (related: Legal Defeasance[33], Off-Balance[34]) – Prepack[35] (Prepackaged Bankruptcy) – Registrar[36] (related: Freddie Mac[37], Fannie Mae[38], Subprime Mortgage Crisis[39], European Debt Crisis[40],Global Financial Crisis[41], Global Economic Crisis[42]) – Securitization[43] (related: Multiple Credit Formation[44]) [related: Asset-Backed-Securities, Collateral, Defeasance, Exchange Of Assets, Financial Leverage (Gearing), Leveraged Buy-Out, Leveraged Lease, Novation (Legal Defeasance), Prepack (Prepackaged Bankruptcy)] – Workout[45] (Workout Agreement)
Frame (1) of Reference
Cal's Annotations | * Trump's Odd Reminiscence Of Smoot N Hawley
Cal's Annotations | * Trump's Total Institutions & Degradation Ceremonies '25
Cal's Annotations | * Trump's Enabling Act '25
Cal's Annotations | * Supreme American Pogrom
Cal's Annotations | * Hail Trump! US.1776.2024.404 Page Not Found
How Trump Tried To Prosecute His Rivals 2018
Trump: A Dangerous Case – Nothing But The Truth!
Nazi Germany's Trump(ler) 1933/45
An American Alert: The Colourful Economics Of Totalitarianism!
Trump's Dereliction Of Duty Jan 6 2021
UAW's Charges vs Musk-Trump On Worker Intimidation 2024
Kamala Harris On Trump's Project 2025
Kamala Harris Interviewing Brett Kavanaugh
The Supreme Connection (Network)
The Supreme Connection (Money)
Just A Small Loan For D. Trump
Teamsters & Company: Beware Of The Fireraiser's Work Ethics!
Teamsters Having An Affair With Trump!
C’mon, Let’s Jump Against Trump!
Trump's P2025 ... /1/ ... ––– Trump's P2025 ... /2/ ... ––– Trump's P2025 ... /3/ ...
"Giving Off" Information At The RNC 2024!
Trump: Presidential Offender Turning Public Victim!
Teamsters Having An Affair With Trump!
Let’s Give "loony doomy donald" A Ride 2024!
American Culture Of Communion!
Age Ain't On America's Agenda!
Centennials: Roosevelt FD (1933/38!) [Centennials: Churchill (1940!) ––– Centennials: De Gaulle (1947!) ––– Centennials: Adenauer (1949!)]
The "US Enabling Act" of 1 July 2024
Scotus' & Croesus' Love Divine!
Ink Eradicators of The US Constitution
Repubs vs Democs | A Nation Going Paranoid
An American Idiot’s Helter Skelter!
When Trump said: "We're going to the Capitol!"
Taking Down Somebody's Particulars: Paul Manafort ...
A Counterfeit World: Not only Trump’s
TrumPutinian Tango & Th‘ Russian Mafia!
Frame (2) of Reference
Statue Of Liberty: "I Need A Dollar!"
Streetlife Is An Option: American Income Inequality, Poverty & Political Polarisation!
UAW's Charges vs Musk-Trump On Worker Intimidation 2024
Age Ain't On America's Agenda!
Centennials: Roosevelt FD (1933/38!) [Centennials: Churchill (1940!) ––– Centennials: De Gaulle (1947!) ––– Centennials: Adenauer (1949!)]
Nikki Haley‘s Odd Principle ...
Frame (3) of Reference
Nazi Germany's Trump(ler) 1933/45
An American Alert: The Colourful Economics Of Totalitarianism!
The Right-Wing's Mummenschanz!
The (In/E)Quality Of An American Dream
Paradoxical Intention On The Authoritarian Pinkie
Germany’s Lord of The Blind(ness): In The Search of An Alternative For Germany!
When White Supremacy Took Over ...
Never Break Leviathan‘s Sleep!
‘Chance‘ Magoo & The Arsonists!
Alleman(n)iac Transformers in Concert ...
Cogwheels Creaking Cowardly ...
Behemoth’s Unresolved Simplexities!
Withstanding Êpitomes of Destrûctiveness!
Fiat Iustitia Et Pereat Mundus
[1] Electronic trading platform (Wikiped) ––– Was software responsible for the financial crisis? | Technology | The Guardian ––– Can Algorithms Help Predict the Next Financial Crisis? (upenn.edu) ––– Spoofing (finance) (Wikiped) ––– Mirror trading (Wikiped) ––– Social trading (Wikiped) ––– Copy trading (Wikiped)
[2] Ken Rogoff - Debts, Deficits and Global Financial Stability - YouTube
[3] Systemic Risk Contributions: A Credit Portfolio Approach (bis.org) ––– McKinsey Global Institute, Debt and Deleveraging. The global credit bubble and its economic consequences (mckinsey.com) ––– The Economist, Financial risk got ahead of the world’s ability to manage it. (economist.com) ––– Number-crunchers crunched | The Economist
[4] EU Commisson, Frequently asked questions: legislative proposal on credit rating agencies (CRAs) ––– Debasement of Ratings (columbia.edu): What is the evidence that rating agencies have been performing badly in measuring credit risk on the debts that they rate? The evidence relates to two separate phenomena: inflated ratings and low-quality ratings. The inflation of ratings is defined as the purposeful over-rating (under-estimation of default risk) on rated debts. Low-quality ratings, defined as ratings based on flawed measures of underlying risk, are a related but logically distinct phenomenon. The recent collapse of subprime-related securitizations revealed both problems in the extreme, but these problems have been present in securitized debt instruments for decades. ––– The Failures of Credit Rating Agencies during the Global Financial Crisis - Causes and Possible Solutions (researchgate.net): The adequacy of credit ratings is crucial for normal functioning of debt markets. Failures of credit rating agencies have strengthened the negative effects of global financial crisis, generating additional systemic risk. The errors of the agencies can be explained by many reasons as business models, conflicts of interest and absent or ineffective regulation of their activities. To overcome these major problems, we can apply different approaches. The best solution is to improve regulatory practices, combining it with limiting the regulatory status of rating agencies. ––– The Credit Ratings Game - BOLTON - 2012 - The Journal of Finance - Wiley Online Library: The collapse of AAA-rated structured finance products in 2007 to 2008 has brought renewed attention to conflicts of interest in credit rating agencies (CRAs). We model competition among CRAs with three sources of conflicts: (1) CRAs conflict of understating risk to attract business, (2) issuers' ability to purchase only the most favorable ratings, and (3) the trusting nature of some investor clienteles. These conflicts create two distortions. First, competition can reduce efficiency, as it facilitates ratings shopping. Second, ratings are more likely to be inflated during booms and when investors are more trusting. We also discuss efficiency-enhancing regulatory interventions. ––– Credit Rating Agencies: How to Restore Credibility (tavakolistructuredfinance.com): Ostensibly the U.S. Securities and Exchange Commission (SEC) qualifies the NRSRO designation. The SEC’s series of failures to check the creation and sale of hundreds of billions of dollars of blatantly misrated securitizations leading up to the financial crisis are beyond the scope of this report. It’s worth noting, however, that if the Food and Drug Administration failed to check the sale of tainted meat that repeatedly sickened a large segment of the population, we would demand a top to bottom overhaul of the organization and its methods. ––– FT, More Wrongdoing At Banks, More Swingeing Fines, No Prosecutions, May 23, 2015: THE scene was familiar: regulators meting out vast penalties to banks, scathing statements about gross misconduct, yet no individuals charged with any crimes and some confusion as to what exactly the banks were admitting to and what effect that would have. On May 20th a consortium of American and British government agencies announced settlements with six international banks regarding claims that they had manipulated currency markets. The six—Bank of America, Barclays, Citigroup, JPMorgan Chase, Royal Bank of Scotland (RBS) and UBS—agreed to pay $5.6 billion in penalties. All but Bank of America also admitted to crimes, although the significance of that is unclear. (Note: Original weblink no longer available) ––– FT, The Credit Rating Controversy, June 29, 2015: The "Big Three" global credit rating agencies—U.S.-based Standard and Poor's (S&P), Moody's, and Fitch Ratings—have come under intense scrutiny in the wake of the global financial crisis. (..) In Europe, the Big Three garnered further controversy over their sovereign debt ratings. While the public debt of crisis-hit countries like Greece, Portugal, and Ireland was relegated to “junk” status, the agencies also downgraded the creditworthiness of France, Austria, and other major eurozone economies. (Note: Original weblink no longer available) ––– FT, Rating Agencies: Badly Overrated – Regulators And Investors Rely Too Heavily On Credit Ratings, May 16, 2002: PITY the poor rating agencies. They work their socks off trying to give sensible credit ratings to every financial instrument they are asked to assess. Now they are under attack: from countries that claim to have been unfairly downgraded (such as Japan, see article); from companies struggling to cope with adverse markets; and from investors alarmed at the speed with which triple-A names can sink to single-B. America's regulators are also, post-Enron, reviewing the top three agencies' quasi-official status, for anti-competitiveness and potential conflicts of interest. (Note: Original weblink no longer available) ––– FT, Sec Pledges Overhaul Of Rating Agencies, January 25, 2003: The Securities and Exchange Commission on Friday pledged a sweeping overhaul of the regulation of credit rating agencies following criticism of their role in the collapse of Enron and the crisis in the telecommunications industry. The chief US financial regulator said a review of the credit rating business had "identified a wide range of issues that deserve further examination". (Note: Original weblink no longer available) ––– FT, Rating Agencies – Exclusion Zone, February 6, 2003: Regulators promise a belated review of the ratings oligopoly. THE domination of any industry by three firms ought to set regulators thinking. Does their power distort markets? Is lack of competition damaging? So it is in the world of credit ratings, where two big agencies, Moody's and Standard & Poor's (S&P), and one smaller one, Fitch, hold sway. The Securities and Exchange Commission (SEC) was asked by Congress last year to review their role. (Note: Original weblink no longer available) ––– FT, Paris To Target Credit Rating Agencies At G7, May 1, 2003: France plans to raise the issue of regulating the international credit ratings agencies with its partners in the Group of Seven industrial countries. The aim is to agree a set of principles with the ratings agencies to make them more transparent and accountable. The French finance ministry has already sounded out Moody's Investors Service, one of three big agencies that dominate the business. (Note: Original weblink no longer available) ––– FT, Pressure On Cdo Ratings, January 12, 2006: The European structured finance market is set to see benign or improving credit ratings cross most market segments this year after the best ever year for upgrades in 2005, according to analysts at Standard & Poor's, the ratings agency. The one area of continuing relative weakness in structured finance - which covers all kinds of asset-backed securitisations - would probably be in collateralised debt obligations, which in 2005 were hit by troubles in the US car industry and were likely to see ratings downgrades again this year. (Note: Original weblink no longer available) ––– FT, CREDIT RATINGS INDUSTRY COMES UNDER ATTACK, March 7, 2006: The dominance of the credit ratings industry by a handful of companies was attacked on Tuesday before the powerful Senate Banking Committee hearing in Washington. The hearing followed calls for legislative action that began intensifying after the failures of the main ratings agencies to flag up problems at Enron, WorldCom and Parmalat. More recent examples include Delphi, the car-parts maker that went from an investment grade rating in December 2004 to bankruptcy in less than a year. The Securities and Exchange Commission currently designates Nationally Recognised Statistical Rating Organisations using unspecified criteria. Only ratings supplied by an NRSRO are valid in the context of laws and regulations involving credit ratings, giving NRSROs huge influence.
[5] Money as Debt - Full Documentary - YouTube
[6] What is Debt/Equity Swap? | Examples | How Does it Work? (wallstreetmojo.com) ––– Corporate Debt Restructuring - ppt video online download (slideplayer.com)
[7] Countries Compared by Economy > Debt > External. International Statistics at NationMaster.com ––– World Debt Clocks (usdebtclock.org) ––– Creditor Country vs Debtor Country (sas.com) ––– America's Foreign Creditors - NYTimes.com ––– Whoops! Why Everyone Owes Everyone and No One Can Pay by John Lanchester | Business and finance books | The Guardian ––– Trends and major holders of U.S. federal debt in charts | Economic Commission for Latin America and the Caribbean (cepal.org) ––– Which Countries Hold the Most U.S. Debt? (visualcapitalist.com) ––– The Resistible Fall of Europe: An Interview with George Soros by George Soros - Project Syndicate (project-syndicate.org) ––– European Debt Crisis - Economic Collapse In 3 Minutes - Clarke & Dawe MUST SEE Video - YouTube ––– The European Debt Crisis Visualized - YouTube
[8] Shadow banking: still big, still dangerous - YouTube
[9] Ethically disputed business practices (Wikiped)
[10] Off-Balance Sheet Financing (OBSF): Definition and Purpose (investopedia.com) ––– Off-balance-sheet (Wikiped) ––– The Rise and Fall of WorldCom: Story of a Scandal (investopedia.com) ––– Enron Scandal: The Fall of a Wall Street Darling (investopedia.com) ––– The Accounting Trick Behind Thirty Years of Scandal | TIME.com
[11] Off-Balance-Sheet Entities: An Introduction (investopedia.com)
[12] The next chapter: creating an understanding of Special Purpose Vehicles (pwc.com) ––– Report on Special Purpose Entities (bis.org) ––– Special Purpose Entities and their role in Megaprojects: a new focus for understanding megaproject behaviour - CORE Reader
[13] Third-party technique (Wikiped)
[14] U.S. Department of Transportation, Risk Assessment for Public-Private Partnerships: A Primer (dot.gov) ––– David Hall, Why Private-Public Partnerships don't work - The many advantages of the public alternative (world-psi.org)
[15] What Are Articles of Incorporation? What's Included (investopedia.com)
[16] Asset-Backed Security (ABS): What It Is, How Different Types Work (investopedia.com)
[17] Bearer security financial definition of Bearer security (thefreedictionary.com)
[18] Collateral Definition, Types, & Examples (investopedia.com)
[19] What Is Defeasance? How It Works on the Balance Sheet and Example (investopedia.com) ––– Novation: Definition in Contract Law, Types, Uses, and Example (investopedia.com)
[20] Off-Balance Sheet Financing (OBSF): Definition and Purpose (investopedia.com)
[21] Equipment Trust Certificate (ETC) Definition (investopedia.com)
[22] Exchange of assets financial definition of Exchange of assets (thefreedictionary.com)
[23] Nine men's morris (Wikiped)
[24] What Is Financial Leverage, and Why Is It Important? (investopedia.com)
[25] What Is Gearing? Definition, How's It's Measured, and Example (investopedia.com)
[26] Golden Parachute: Definition, Examples, Controversy (investopedia.com)
[27] Interval Measure – Meaning, Importance, How to Calculate, Burn Rate | eFM (efinancemanagement.com)
[28] Leveraged Buyout (LBO) Definition: How It Works, with Example (investopedia.com)
[29] Leveraged Lease Definition (investopedia.com)
[30] Modified Accelerated Cost Recovery System (MACRS) Definition (investopedia.com)
[31] Monte Carlo method (Wikiped) ––– IN THE LAND OF THE MAGIC ASTERISK - The New York Times (nytimes.com) ––– Four Magic Tricks for Fiscal Conservatives by Jeffrey Frankel - Project Syndicate (project-syndicate.org)
[32] Novation: Definition in Contract Law, Types, Uses, and Example (investopedia.com)
[33] What Is Defeasance? How It Works on the Balance Sheet and Example (investopedia.com)
[34] Off-Balance Sheet Financing (OBSF): Definition and Purpose (investopedia.com)
[35] Prepackaged Bankruptcy Definition (investopedia.com)
[36] Registrar: Overview and Examples in Corporate Finance (investopedia.com)
[39] Subprime mortgage crisis (2007-2010) (Wikiped)
[40] European debt crisis (Wikiped)
[41] Global financial crisis in 2009 (Wikiped)
[42] Great Recession (2007-2009) (Wikiped)
[43] Securitization: Definition, Meaning, Types, and Example (investopedia.com) ––– Secured Debt Definition (investopedia.com)
[44] Management of Corporate Greatness: Blending Goodness with Greed - Pradip N. Khandwalla - Google Books
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