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Financial Crisis Topics

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I. Macro Policy Issues

a. Federal Reserve

b. Greenspan Put

c. Market Bubbles

d. Combat Business Cycle vs. Accept Business Cycle

e. Proper Role of Regulation

f. Effects of Low Interest Rates

i. Savings

ii. Desire for High Yield

g. International Policy Issues

i. Savings Glut?

ii. The United States as Borrower and Spender of Last Resort

iii. Increasing U.S. Trade Deficits

iv. Asian Policies to Protect Against Another Asian Contagion

II. The True Nature of Risk and Market Structures

a. Complex vs. Simply Systems

b. Risk =Standard Deviation?

i. Assumptions of Modern Finance Theory

1. Portfolio Theory

2. Capital Asset Pricing Model

3. Black-Scholes Option Pricing Model

c. The Rise of the Quants and Quant Disasters

i. October 19, 1987 and Portfolio Insurance

ii. 1998 Russian Default and the Collapse of LTCM

iii. Proliferation of Derivatives

iv. Lack of Transparency caused by Complex Instruments

d. Risk Asymmetry –What happens when you own the upside, but not the downside?

III. The Story of Subprime

a. Fannie Mae and Freddie Mac

b. The Death of the Thrifts

c. Securitization

d. ABS, MBS, CDOs, CMO, CLO, CDS

e. Creation of the Shadow Banking System

f. Modeling Mortgages

g. The Thirst for High Yield

h. The Role of Regulation in Lending Markets

i. How everyone can act rationally and create an irrational system.