Learning How Not To Mortgage the Future
No one much likes mortgage-backed securities or collateralized debt obligations at the moment. Some pundits even ponder whether they'll spell the doom of the entire modern capitalistic economic system. Before we bring back the hammer and sickle, however, let's analyze what we know about what went wrong, and how we can learn valuable lessons about risk from it.
Two studies by Joseph R. Mason, associate professor of finance and LeBow Research Fellow at the Drexel University LeBow College of Business and Senior Fellow at the Wharton School, and Joshua Rosner, managing director at Graham Fisher & Co., shed light on the before and during of the current financial quake.
In the first report on mortgage-backed securities, the authors explore how collateralized debt obligations got big while lending standards loosened, and "the environment of understated risk" that resulted.
The second report delves into how the ratings agencies got it wrong with mortgage-backed securities and collateralized debt obligations.
October 15, 2007
Copyright 2007© LRP Publications