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
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
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
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
Where Did It All Go Wrong?
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
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
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
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
The Financial System from 2009
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