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    Reparing A Broken Economy

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    Hugo Valmaséda
    This document discusses various causes of and proposed solutions to the financial crisis. It examines the role of subprime mortgages, securitization, bank leverage, rating agencies, government sponsored enterprises, regulation of large financial institutions, hedge funds, corporate governance, credit default swaps, and the need for international coordination of financial regulation. The key solutions proposed include better defining the boundaries of financial firms, improved oversight of rating agencies, shutting down investment arms of government entities and making their remaining roles more transparent, enhanced regulation of large complex financial institutions, and increased transparency and centralized clearing of credit default swaps.

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    Reparing A Broken Economy

    Uploaded by

    Hugo Valmaséda
    29 views13 pages
    This document discusses various causes of and proposed solutions to the financial crisis. It examines the role of subprime mortgages, securitization, bank leverage, rating agencies, government sponsored enterprises, regulation of large financial institutions, hedge funds, corporate governance, credit default swaps, and the need for international coordination of financial regulation. The key solutions proposed include better defining the boundaries of financial firms, improved oversight of rating agencies, shutting down investment arms of government entities and making their remaining roles more transparent, enhanced regulation of large complex financial institutions, and increased transparency and centralized clearing of credit default swaps.

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    Reparing a Broken Economy

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    This document discusses various causes of and proposed solutions to the financial crisis. It examines the role of subprime mortgages, securitization, bank leverage, rating agencies, government sponsored enterprises, regulation of large financial institutions, hedge funds, corporate governance, credit default swaps, and the need for international coordination of financial regulation. The key solutions proposed include better defining the boundaries of financial firms, improved oversight of rating agencies, shutting down investment arms of government entities and making their remaining roles more transparent, enhanced regulation of large complex financial institutions, and increased transparency and centralized clearing of credit default swaps.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    29 views13 pages

    Reparing A Broken Economy

    Uploaded by

    Hugo Valmaséda
    This document discusses various causes of and proposed solutions to the financial crisis. It examines the role of subprime mortgages, securitization, bank leverage, rating agencies, government sponsored enterprises, regulation of large financial institutions, hedge funds, corporate governance, credit default swaps, and the need for international coordination of financial regulation. The key solutions proposed include better defining the boundaries of financial firms, improved oversight of rating agencies, shutting down investment arms of government entities and making their remaining roles more transparent, enhanced regulation of large complex financial institutions, and increased transparency and centralized clearing of credit default swaps.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 13

    Reparing a broken economy

    Diego MARTIN SANCHEZ Lyzz TANIO

    Introduction

    New York University Stern School of Business

    Mortgage origination and securitization in financial crisis


    Subprime loans are a direct consequence of securitization. These loans created a wave of refinancing or defaults The systematic dimension of the crisis was born from the leveraged concentration of risky mortgage-backed

    How banks played the leverage game?


    Bank avoided regulatory capital requirement, took on excessive leverage and used the feed-up capital to bet on aggregate risks regulation and defining the boundaries of financial firms

    Rating agencies
    The major rating agencies bear much responsibility when the mortgage securities collapsed during the period 20072009 Understanding how and why the agencies grew to be so important in necessary before policymakers can find out sensible regulatory solutions.

    What about the government sponsored enterprises?


    Private profit taking with socialized risk is untenable The GSE's investment function should be shuttered and its securitization and guarantor role folded into a government agency

    Enhanced regulation of large complex financial institutions :


    The new generation of Goliaths in US and global financial market are now at the heart of the ongoing crisis A special and dedicated regulator is necessary to protect the safety of the financial system Protection from problems arising in institutions that are too big or too interconnected to fail

    Hedge funds in the aftermath of the financial crisis!


    Hedge funds provide liquidity to the market and do not receive guarantees from the government Any other regulation : not justified => hedge funds generate risk and are imposing externalities on the financial system

    Corporate governance in the modern financial sector :


    Mistakes in corporate governance => central role in the global financial crisis Review what should and shouldn't be done to improve corporate governance in financial firms.

    Centralized clearing for credit derivate:


    Existing Credit Default Swaps have played an important role in exacerbating the current financial crisis To keep them from playing such a central role in the next crisis, they should move to centralized clearing with greater transparency.

    International alignment of financial sector regulation

    Absence of international coordination Large country central banks have to assume the role of systemic regulators of large, complex financial institutions

    To sum up
    Regulate and define the boundaries of financial firms Find out regulatory solutions for rating agencies The GSE's investment function should be shuttered and its securitization and guarantor role folded into a government agency Protect the safety of the financial system Review the mistakes made in corporate governance in financial firms Credit Default Swaps should be more transparent. International alignment of financial sector regulation

    Thank you for your attention

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