Financial Origami How the Wall Street Model Broke

by Moynihan, Brendan

• ISBN13: 9781118001813
• ISBN10: 1118001818
• Edition: 1st
• Format: Hardcover
• Copyright: 2011-04-05
• Publisher: Bloomberg Press

Summary

Origami is the Japanese art of folding paper into intricate and aesthetically attractive shapes. As such, it is the perfect metaphor for the Wall Street financial engineering model which ultimately proved to be the underlying cause of the 2008 financial crisis. In Financial Origami, Brendan Moynihan describes how the Wall Street "origami" model evolved from a method to transfer risk into a method for manufacturing risk. For a period of time, the origami model worked well as it helped businesses cope with currency and interest rate volatility. But in the comparatively stable years of the early 2000s, when there was less risk to transfer, Wall Street began manufacturing risk by creating products that multiplied risk exposures and encouraged subprime lending. With the collapse of Lehman Brother the model effectively died. The strength of the book is it's dissection of financial engineering and how it's often a mechanism to evade regulatory constraints, provide institutional investors with customized products, and, of course, to generate revenue for financial engineers.

Author Biography

Brendan Moynihan is an editor-at-large for Bloomberg News, where he manages the popular column "Chart of the Day" and writes about the economy and Wall Street. He has been with the company since 2006, after spending more than twenty years on Wall Street as a trader and risk manager. Moynihan is the author of Trading on Expectations (Wiley) and coauthor of What I Learned Losing a Million Dollars. He lives in Barrington Hills, Illinois, with his wife and two sons, and is currently writing a book on English grammar.

Table of Contents

Author's Note	p. xi
Introduction	p. xiii
Fold Sides to Center	p. 1
Commercial Banks	p. 5
Savings and Loans	p. 9
Securities Firms	p. 10
Transferring Risk	p. 12
End of an Era	p. 14
Result, Turn Over	p. 17
The Three Derivatives	p. 22
Options	p. 23
Futures	p. 24
Swaps	p. 25
Fold Sides to Center, Again	p. 29
Changing the Rules	p. 33
A New Environment	p. 36
Investing in Mortgages	p. 39
Banker Incentives	p. 42
Fold Tip to Point	p. 45
Other People's Money: Equity	p. 50
Agents Transferring Risk Become Principals Taking It	p. 53
Fold Point Back	p. 59
Rules, Refold, Rave, Ruin	p. 64
A New Environment	p. 66
A New Risk	p. 68
Fold in Half	p. 75
Mortgage Origami	p. 78
Subprime Origami	p. 81
The Rating Game	p. 82
Banker Incentives	p. 86
Manufactured Product	p. 89
Pull Neck Upright	p. 91
Low Volatility, Low Risk	p. 96
The CDS Market Develops	p. 98
More Insurance Than Needed	p. 101
Opaque Markets	p. 103
Other People's Money: Debt	p. 106
Pull Head to Suitable Angle	p. 109
Vindicating Greenspan	p. 115
How, Not Will, You Pay?	p. 117
Broken Markets	p. 119
Complete	p. 125
What's Wrong with Wall Street?	p. 130
Government-Sponsored Enterprises	p. 131
Government-Sanctioned Credit-Rating Agencies	p. 137
Banks	p. 139
What's Right with Wall Street?	p. 141
Epilogue	p. 147
Notes	p. 153
About the Author	p. 157
Index	p. 159
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