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Can someone explain this in an easier way.?

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Question by Arrow: Can someone explain this in an easier way.?
I don’t really get this statement:

Excessive lending under loosened underwriting standards, which was a hallmark of the United States housing bubble, resulted in a very large number of sub prime mortgages. These high risk loans had been perceived to be mitigated by securitization. Rather than mitigating the risk, however, this strategy appears to have had the effect of broadcasting and amplifying it in a domino effect.

Best answer:

Answer by Books
It’s saying that money was loaned to people who couldn’t afford to pay it back. The loans were sold to investors to spread the risk. The amount was so great that spreading the risk by selling the loans to other investors just caused greater damage.

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Can someone explain Wall Street, market capitalization, company equity, *stock exchange & more?

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Question by KAI: Can someone explain Wall Street, market capitalization, company equity, *stock exchange & more?
I’m really stupid, and would like to know.

10 POINTS AND APPRECIATION FOR THE PERSON WITH THE BEST ANSWER!
was unsure of what section to put this in, sorry.

Best answer:

Answer by juicebox
wall street: a financial district in New York, home of various stock exchanges, like the New York Stock Exchange. It’s essentially the financial center of the world.
Market Capitalization: the number of shares a company has multiplied by their market price. So if a company had 1,000,000 shares at 5$ each, it’s market capitalization would be $ 5,000,000. A share is basically a security that represents ownership in a company.
Company Equity: the assets of a company minus its liabilities. Assets are anything that generate revenue for a firm or increase its value, like plant equipment, cash, inventory, and accounts receivable (accounts receivable is very simply “money owed to a company by its debtors”. An example would be when you purchase a car. You don’t normally pay the whole thing up front; you enter a plan where you make monthly payments to pay it off). Liabilities are financial obligations a company has. So this means, in the future they will have to spend revenue to meet those obligations. An example would be a company that has financed itself through bonds which are debt instruments.
Stock Exchange: a stock exchange is the market for securities and equity derivatives trading (the trading of company shares, equity derivates: search options and futures).
Search “equity financing investopedia” or “share investopedia” and there will be a more clear and comprehensive definition with articles that will give you a walk through. Investopedia is actually the best site for finance and economics; it has articles and definitions for introductory financial and economic concepts all the way up to the more complex ones like derivatives, securitization and hedging. Sorry if this wasn’t any help

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Can someone summarize this book for me?

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Question by rmz_usa: Can someone summarize this book for me?
Can someone summarize the book “The business of Investment Banking, A Comprehensive overview” for me in 1 or 2 paragraphs? It is a large textbook, so I would appreciate it very much.

Best answer:

Answer by cactusgene
Synopsis

The business of investment banking has become intensely competitive. With a growing number of clients who prefer to deal with a single financial adviser for all their capital needs, firms must now engage in all major capital-market activities in order to meet this demand. Rapid advances in information technology have closely linked the international capital markets and, as a result, major securities firms have gone global to better serve their clients. To fully understand this changing environment and remain players in the game, new and seasoned professionals alike will require detailed, in-depth information on a broad scope of banking operations.

The Business of Investment Banking: A Comprehensive Overview, 2nd Edition is a complete guide to the major banking activities in today’s global marketplace. This convenient, one-volume reference identifies and analyzes key trends worldwide, allowing banking and finance professionals to effectively manage deals and incorporate trends into operations. In The Business of Investment Banking: A Comprehensive Overview, 2nd Edition, Professor K. Thomas Liaw goes beyond traditional banking topics and includes extensive coverage of rarely discussed subjects that are integral to investment banking, such as emerging markets, proprietary trading, repurchase transactions, operations, money management, and how foreign firms list on Wall Street.

Beginning with an overview, covering everything from underwriting to M&As to global presence, Liaw provides a thorough and rigorous analysis of the current market practices in all relevant business segments. He presents an investment banker’s perspective on the current environment, with a detailed description of the strategic decision-making process that is crucial to successfully managing the investment bank.

This thorough guide is divided into four main sections:

Basic Business-explores venture capital investment, mergers and acquisitions, underwriting, and asset securitization
Global Perspective-detailed information about foreign listing on Wall Street, international capital markets, and emerging markets
Trading and Risk Management-extensive data on proprietary trading, repurchase agreements, financial engineering, and money management
Special Topics-discusses clearing and settlement, securities regulation, ethics, major trends, and Section 20 subsidiaries

Comprehensive, unparalleled coverage of a wide range of topics makes The Business of Investment Banking: A Comprehensive Overview, 2nd Edition an invaluable, one-stop resource for all practicing investment banking professionals and for graduate students interested in a career in capital markets.

Here are 22 more customer reviews of people who have actually used it. Half of them say it is a 5-star book (the best) and give you what they liked or learned from it:

http://www.amazon.com/Business-Investment-Banking-Comprehensive-Overview/product-reviews/0471739642/ref=dp_top_cm_cr_acr_txt?ie=UTF8&showViewpoints=1

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Can someone explain the securitization process?

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Question by Itsybitsy: Can someone explain the securitization process?
and the precautions the originator takes for issuing the securitized instrument?

Best answer:

Answer by ronwizfr
Imagine a real estate company needs money to invest in a new project. The three classic ways to raise new capital are a loan, a bond issue, or a stock issue. However, stock offerings dilute the ownership and control of the company, while loan or bond financing is often expensive due to the credit rating of the company.

Securization is another possibility.

Imagine the company has a lot of mortgages or leases outstanding. Those will provide a steady income stream over the next couple of years.
The company can not demand early repayment on the leases and so it can not get its money back today. What it does instead is sell the rights to the cash flows to someone else, in exchange for a lump sum today.

Several precautions have to be taken.

In case of bankruptcy of the issuer, the mortgages would have to be distributed among it’s creditors. To prevent this the pool of assets is transferred to a separate entity, the special purpose vehicle.
Secondly, the income stream might not be very sure itself, so to increase the creditworthiness the assets pool might contain also other loans with a higher credit rating. The cash flow might also be insured by another company, specializing in such “surety bonds.”

All in all, it’s fun stuff: take one brick of the pyramid away and ….

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Can someone please help me in simple words with the helpof an example: What is asset securitization?

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Question by MUNJAL S: Can someone please help me in simple words with the helpof an example: What is asset securitization?

Best answer:

Answer by jeff410
http://www.investopedia.com/terms/s/securitization.asp

Its the bundling of assets and then selling them to investors. They are backed by the income from the assets, such as mortgages. Its a way of turning them into cash quickly for the sellers.

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Q&A: Can someone explain in layman’s terms, what securitization of mortgages is/means?

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Question by ee: Can someone explain in layman’s terms, what securitization of mortgages is/means?
From what I’ve read banks supposedly ‘pooled’ their mortgages and loans and sold them to others at a profit. I don’t understand why others would pay them at a rate where they make a profit. I don’t understand why ‘pooling’ mortgages results in a value that results in a profit being made when it is sold. Why not just keep them, why sell them in the first pladce?
Any help would be really appreciated, if not answers then even links to other websites.

Best answer:

Answer by Ju
Sorry i know little about mortgages ,nothing to help you,very sorry.

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Can someone recommend a good book that thoroughly describes financial terms/concepts (for investing)?

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Question by Mister Chartreuse: Can someone recommend a good book that thoroughly describes financial terms/concepts (for investing)?
An introductory book, which describes terms/concepts like securitization, derivatives, bond-markets etc.

I want to understand these things to the end of knowing how to interpret/read company balance sheets, market speculation/volatility, currency markets etc, so that I can have some general financial/investment wherewithal.

Any suggestions would be greatly appreciated.

Best answer:

Answer by cactusgene
‘Investing for Dummies’ is a good book for a novice and it is available on Amazon. The advanced concepts you mention above are quite complex, but try the links below:

http://www.amazon.com/Investing-For-Dummies-Eric-Tyson/dp/047090545X
http://en.wikipedia.org/wiki/Mortgage-backed_security
http://www.bis.org/publ/bppdf/bispap63e.pdf

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Can someone please explain what synthethic CDO’s are?

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Question by Alex G: Can someone please explain what synthethic CDO’s are?
It’s for my project on the Great Recession. I understand the tranches & securitization process behind regular CDO’s so you don’t have to start at the beginning. Thanks so much

Best answer:

Answer by Mike
Synthetic CDOs are just side bets on mortgages. Typically they have a similar structure as regular CDO except the “senior” tranche is called the “super senior” tranche”. Typically a synthetic CDO is comprised of mortgages from other CDOs. Sometimes the synthetic CDOs are packaged with only the lower tranches of another CDO which then may be known as “CDO squared”.

Typically a synthetic CDO is protected by “credit default swaps” but seldom is the “super senior” tranche protected. It was assumed that since the “super senior” tranche was rated AAA, that tranche would not default but with all the manipulation, it was guaranteed to default.

Most of the problems during the credit crisis were caused by the synthetic CDOs and not the regular CDOs. The “super senior” tranches were the ones that were selling for 20 cents on the dollar (if they could find buyers).

http://www.tavakolistructuredfinance.com/ifr2.html
http://clickbroker.blogspot.com/2008/04/super-seniors-take-control-of-cdos.html
http://www.math.utexas.edu/users/zariphop/pdfs/ProtterTheFinancialMeltdown.pdf
http://www.portfolio.com/views/blogs/market-movers/2008/12/01/whats-a-super-senior-tranche?tid=true
http://www.nakedcapitalism.com/2008/04/merrills-reckless-mortgage-bond-binge.html
http://www.roubini.com/financemarkets-monitor/253166/is_merrill___s_cdo_transaction_with_lone_star_consistent_with_markit_abx_pricing_

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Can someone explain Securitizations and CDOs and how they contributed to the economic collapse?

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Question by Charlie: Can someone explain Securitizations and CDOs and how they contributed to the economic collapse?
I’m writing a research paper and I can’t get a grasp of HOW these aided in the collapse of companies.

Best answer:

Answer by LouBee
It made it easy to unload toxic loans on unknowing investors.

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