Unravelling the Credit Crunch  book cover
1st Edition

Unravelling the Credit Crunch

ISBN 9781439802588
Published June 8, 2009 by Chapman & Hall
328 Pages 65 B/W Illustrations

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Book Description

Fascinating Insight into How the Financial System Works and How the Credit Crisis Arose
Clearly supplies details vital to understanding the crisis

Unravelling the Credit Crunch provides a clearly written, comprehensive account of the current credit crisis that is easily understandable to non-specialists. It explains how the financial system was drawn into the crunch and the issues that need to be addressed to prevent further disasters.

To enable an understanding of the credit crunch, the author first examines the rules that constrain how financial institutions operate. He discusses how these institutions do business, what products were central to the development of the crunch, and how they behave. He thoroughly describes how financial institutions raise money and the legal and regulatory frameworks under which they operate. After exploring how the system works, the book illustrates how to change the rules to make financial disasters less likely.

Focusing on the rules involved in the game of finance is essential if we want to figure out what happened that led to this financial debacle. This book shows us how the actions of many financial institutions, regulatory bodies, central banks, and investment managers adversely affected the entire financial system.

Table of Contents


What Happened?

U.S. Residential Property: The Crunch Begins

Old- and New-Style Banking

What Happened in the Markets: The Second Stage

Après Lehman le Déluge: The Third Stage

Understanding the Slime: U.S. Residential Mortgages

Mortgage Structures and Borrowers

How Mortgages Were Made

Mortgage Lending during the Greenspan Boom

A Story of the ODM: Countrywide Financial

Financial Assets and Their Prices


Markets and Prices

The Liquidity of Financial Assets

What’s in It for Me?

Liquidity and Central Banks

The Basis of Old-Style Banking

Liability Liquidity

Central Banks

Central Bank Policy in a Crunch

A Tale of Two Central Banks

A Twenty-First Century Run: Northern Rock

The Crash of 1929 and Its Legacy

The Crash of 1929 and the Great Depression

Political Reactions

The New Deal

The RFC and Other Rescuers

The Evolution of Freddie and Fannie

Securitization, Tranching, and Financial Modeling


The Securitization of Subprime Mortgages

Models and Hedging

Model Risk

Where Did It All Go Wrong?

The Write-downs

The Legacy Fails: Fannie, Freddie, and the Broker/Dealers in 2008

The Growth, Distress, and Rescue of Fannie Mae and Freddie Mac

Financial Services Modernization in the 1990s

The End of the Broker/Dealer

Lessons from the Failure of the Broker/Dealer Model

Compensating Controls

Structured Finance

Credit Derivatives

ABS in Structured Finance

Structured Finance in the Boom Years

Insurance in Form and Name

The Rescue of AIG

Off Balance Sheet Funding

Municipal Finance and the Monolines

Municipal Finance

The Monolines Do Structured Finance

Insurers and Finance: A Toxic Mix?

Auction Rate Securities

The Rules of the Game: Accounting and Regulation

Accounting and Why It Matters

Regulation and Regulatory Capital

The Consequences of Basel 2

Regulation away from Basel

Understanding Earnings

Japan’s Lost Decade

A Comparative Anatomy of Financial Crises

Changes and Consequences


The Provision of Credit to the Broad Economy

What Worked and What Didn’t

Central Banks, Regulators, and Accountants

Experimental Finance

The Financial System from 2009


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David Murphy is principal of rivast Consulting, a leading London risk management consultancy.


"The crisis is a bafflingly complex phenomenon. This complexity is considerably amplified by the incomprehensible jargon that most experts use to discuss it. This book is the first that I have seen to explain the many different aspects of the crisis in terms that everybody can understand. The coverage is excellent starting with why the crisis started in the housing sector, the role of the Federal Reserve, and so forth. The book also explains securitization, tranching, and many other technical aspects the reader needs to understand what happened. It provides historical context by discussing what happened in the 1930s and the 1990s in Japan. While the U.S. is naturally central, the effect of the crisis on other countries is also discussed. I highly recommend this book to everybody."
—Franklin Allen, Nippon Life Professor of Finance and Economics, The Wharton School of the University of Pennsylvania, Philadelphia, USA