The subprime fiasco: Derivatives and ratings
Abstract
The easy-money policies of the Federal Reserve Board (the Fed) in the early part of the decade did fuel the mortgage bubble. More important in structural terms, however, was the advocacy by the Fed and other US bank regulators of over-the-counter derivatives dealing by the major US banks. Without the wonders of structured finance, there would have been no ‘demand pull’ surge for mortgage paper starting in the 2003 period, when buy-side investors began to clamour — no, scream — for higher risk-adjusted returns.
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Author's Biography
Christopher Whalen is co-founder and managing director of Institutional Risk Analytics, a Los Angeles provider of customised financial analysis and valuation tools for risk managers, auditors and other financial professionals. He volunteers as a regional director of the Professional Risk Managers International Association.
Citation
Whalen, Christopher (2007, December 1). The subprime fiasco: Derivatives and ratings. In the Journal of Risk Management in Financial Institutions, Volume 1, Issue 1. https://doi.org/10.69554/YRZR7739.
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