Explain how derivates were used to increase risk making the financial crisis of 2007-2009 more severe
U.S. investment banks bought many Credit Default Swaps (CDSs) to protect themselves from potential losses related to the complicated financial securities they were buying and selling. When American homeowners began defaulting on their mortgages, returns on these investments fell and the value of these mortgage-related products declined rapidly. But when banks tried to redeem their CDS contracts, the insurers, who had not expected these new financial products to fail en masse, did not have enough cash on hand to cover the contracts. For instance, the huge insurance company American International Group (AIG) sold many CDSs to financial firms with investments in mortgage-backed securities. When those securities began to fail in September 2008, the firms that had insured their investments in those securities by purchasing CDSs tried to collect the money AIG had agreed to pay if default occurred. However, AIG had miscalculated the default risks of the securities it had insured with its CDSs?it had not expected so many of them to fail at the same time and it did not have enough money to make all of the payments due to the purchasers of these CDSs.
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The real interest rate is
A) the nominal interest rate plus the anticipated inflation rate. B) the nominal interest rate minus the anticipated inflation rate. C) the nominal interest rate plus a COLA. D) the nominal interest rate plus the GDP deflator.
Suppose the local government is considering using marginal cost pricing to set rates for a cable TV company. Which of the following arguments supports marginal cost pricing?
a. Marginal cost pricing gives the monopoly economic profit and a reason to stay in business. b. Marginal cost pricing gives the firm a normal economic profit and a reason to stay in business. c. Marginal cost pricing is allocatively efficient. d. Average cost pricing requires subsidies, which can be costly. e. Average cost pricing forces monopolies to operate at a loss.
Answer the following statement(s) true (T) or false (F)
1. The Water Quality Act of 1987 embodies revisions to the Clean Water Act of 1977. 2. The Coastal Zone Act Reauthorization Amendments (CZARA) addressthe development of coastal nonpoint pollution control programs. 3. In the wake of the BP Deepwater Horizon oil spill in the Gulf of Mexico, President Obama signed the Oil Pollution Control Act. 4. The Clean Water Act’s zero discharge goal was met in 1985. 5. The Clean Water Act’s no toxics in toxic amounts goal can be justified on economic grounds.
In which of the following U.S. occupations is the rate of unionization the highest?
A. Protective services. B. Sales workers. C. Managers. D. Transportation workers.