mcnees287
Also, I want mine and your teenagers to be studying and preparing for their futures. These are jobs with limited upside, for the most part.
What I have just done is to create more exposure than the underlying MBS. The MBS is still only $100 million, but the total outstanding contracts on the pool (MBS + CDS) is now much larger.
What you are talking about is related to offsetting contracts, which is different.
AIG was left holding the bag for most of these. They are one of the few who did not offset like you are saying.
(Most) banks, especially small ones, are unwilling to sell and hold a fixed rate 30 year mortgage. There's way too much risk, price volatility (driven by rates) and uncertainty about what will happen over a 30 year time period.
Banks only do a 30 year mortgage because they know they can sell it to FHA or the GSEs.
It's not correct to say that banks can sell off all of their risk through securitization. They do in fact retain some of the risk. Though most has been transferred.
The buffer is (in theory) in excess of the losses. So, after a crises a bank would be left with the buffer and be able to continue to operate as a going-concern. The question is how to set the buffer and how big ?
After the housing crisis the private market (mostly banks) left very quickly. FHA and the GSEs stepped in and took their share.
The quantitative easing (QE) programs are designed to decrease long-term rates, in other words, flatten the yield curve, which have been more-or-less successful. In the US this program is drawing to a close.
The EU is really a different story and a lot of what is going on there has to do with the fact that they failed to tackle their banking crisis in 2009-2010. The US was able to swallow the medicine more quickly.
The EU did put in place other programs, including the long term refinance operation, which has never has used explicitly.
The economic cycle is just that. Always expect the next downturn. The question is will there by another financial crisis in the next few years, or will the crisis come later?
The process proceeds along the following lines:
1. Acquire a stake of more than 5%, which requires a public filing with the SEC. This is very key as now the public has a verifiable way of knowing Icahn has a stake.
2. Write a letter to the board and/or management demanding changes to the structure of the company or use of its large cash pile(if applicable). This usually takes the form of a spin-off or buyback/dividend proposal. (Buybacks are more favorable these days due to tax considerations.)
3. The stock price increases at least 10% after it is announced Icahn has taken a stake. Icahn can sell here and take his profits home; 10% annualized is a very large gain.
3. Management predictably scoffs at Icahn's demands or arranges a show for shareholders in the form of a one-on-one meeting with the CEO or something along these lines. Nothing tangible happens.
4. Icahn sometimes is able to pressure firm management/board into buybacks or dividends, which only adds to Icahn's paper profits (see 3). This is usually done through the very real threat of going directly to the shareholders with a proxy to elect new board members. Even if this is unsuccessful Icahn still has achieved 3.
This is known as the 'Icahn tax'. Due to name recognition and a strong track record Icahn is able to exert pressure on firms for a quick and easy buck. Nothing more.
Where, M=money supply V=times money changes hands in one-year P=price level Q=GDP
The assumptions for this model are often missed, and include:
1.No excess reserves
2.No international leakages, ie.,no carry trade.
Current excess reserves are nearly $1.9 Trillion
Excess Reserves Source (FRED): http://research.stlouisfed.org/fred2/series/EXCRESNS
This is a classic case of concentrated benefits with dispersed cost. It's a messed up situation, but not corrupt.
Often if a firm is willing (able) to pay upfront in cash they will receive a discount such as being required to pay only 0.8x, for example. The key point is that the true cost of the goods is in fact 0.8x. while x is the financed cost.
Net 30,15 and so on is a form of financing the purchase to the purchasing company. The rate that one must pay to get the goods today and pay in thirty or fifteen days should be compared to other forms of financing. A firm should consult a bank for instance to determine if they can finance the purchase at a lower rate.
I would recommend not playing with any money you're not 100% okay with loosing entirely.
They will have to pay a much higher rate in the future. Making default expensive.