Subprime Mortgage Market
Terms and People
Financial Sector
Rating
Miscellaneous
100
What were the market insider's argument in defense of subprime CDOs?
The buyer will never go away - in their short history they had never defaulted in meaningful amounts
100
Who was Wing Chau?
He ran an investment firm called Harding Advisory
100
. What would happen to Bear Stearns if the subprime mortgage crashed?
It would crash too
100
How did the ratings on bonds backed by floating-rate mortgages compare to the ratings on bonds backed by fixed rate ones?
The ones backed by floating-rate mortgages received higher ratings
100
What exactly is inside a CDO?
No one knew. Triple B
200
Why were the losses in the financial system so much greater than just the subprime loans?
The credit default swaps, filtered through the CDOs, were being used to replicate bonds backed by actual home loan
200
What does CDO stand for?
Collateralized debt obligation
200
. What did Eisman realize when he talked to the CEO of Bank of America?
These CEO's were dumb. They didn't even know what was on their own balance sheet
200
What was allowing insurance companies or pension funds to hand its capital to Wing Chau?
the triple A ratings gave everyone an excuse to ignore the risks they were running
200
What was the phrase Eisman kept saying when he was actually listening to someone?
Say that again
300
There was a growing disconnect between the prices of what two things between mid-2005 until early 2007?
Between price of subprime mortgage bonds and the value of the loans underpinning them
300
Who were the sorts of investors who handed their money to Wing Chau?
German banks, Taiwanese insurance companies, Japanese farmers' unions, European pension funds, and, in general, entities more or less required to invest in triple-A-rated bond
300
Why had Wall Street cooked up this new industry called structured finance?
Traditional ways to make money weren't making money
300
What was wrong about the access to information that the people working for S&P had?
They only had access to the same rough information available to traders like Eisman. They were worried that if they demanded the data from Wall Street, Wall Street would just go to Moody's for their ratings.
300
Who did Eisman compare himself to?
Spider-man
400
What problem did the collapse of Bear Stearns pose for Cornwall?
Bear Stearns had sold Cornwall 70 percent of its CDS's. Because Bear Stearns was big and important, and Cornwall Capital was a garage band hedge fund, Bear Stearns hadn't been required to post collateral to Cornwall. Cornwall was now totally exposed to the possibility that Bear Stearns would be unable to pay off its gambling debts
400
What is equity or first loss piece?
the piece that vanished first when the subprime loans that ultimately supplied the CDO with cash defaulted.
400
After the dinner, what did Eisman tell Lippmann he wanted to buy?And Why?
He wanted to buy CDS's on Wing Chau's CDO's
400
What was the entire financial industry trusting in?
THe ratings
400
paid a fee of 0.01 percent off the top, before any of his investors saw a dime, and another, similar fee, off the bottom, as his investor received their money back
How does the CDO manager make his money?
500
How were these subprime mortgages structured (in terms of payment) for homeowners?
the homeowner would pay a fixed teaser rate of, say, 8 percent for the first two years, and then, at the start of the third year, the interest rate would skyrocket to, say, 12 percent, and thereafter it would float at permanently high levels.
500
Which bank did Cornwall's risk on betting on the collapse of Bear Stearns shift to?
HSBC
500
ce What did the CDO manager do to assure big investors who had given him billions that he had their best interest in mind?
CDO manager kept ownership of what was called the "equity," or "first loss" pie
500
What were the rating agencies' assumptions about home prices and loan losses?
Home prices would rise and loan losses would be around 5 percent
500
Who sponsored the conference that Charlie and Ben went to the American Securitization Forum?
John Devaney
M
e
n
u