Reputation and Sudden Collapse in Secondary Markets
0 likes | 142 Views
Reputation and Sudden Collapse in Secondary Markets . Discussion by Andy Neumeyer Universidad Torcuato Di Tella. SEC probes second Goldman security. From the Financial Times. June 9 2010 23:42
Reputation and Sudden Collapse in Secondary Markets
An Image/Link below is provided (as is) to download presentationDownload Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.Content is provided to you AS IS for your information and personal use only. Download presentation by click this link.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.During download, if you can't get a presentation, the file might be deleted by the publisher.
E N D
Presentation Transcript
Reputation and Sudden Collapse in Secondary Markets
Discussionby Andy Neumeyer Universidad Torcuato Di Tella
SEC probes second Goldman security From the Financial Times. June 9 2010 23:42 “The US Securities and Exchange Commission has stepped up its inquiries into a complex mortgage-backed deal by Goldman Sachs that was not part of the civil fraud charges filed against the bank in April, according to people close to the matter. SEC interest in Hudson Mezzanine Funding, a $2bn collaterised debt obligation, comes amid settlement talks with Goldman over accusations that the bank defrauded investors in Abacus, a similar CDO.”
MainConclusions of thepaper Adverse selection => multipleequilibria in secondarymarketsforloans Equilibriumrefinementselectsamongtheseequilibriawithsignalson colateral values Policiesimplemented in 2008 are eitherbadorirrelevant Assetpurchases Lowinterestrates
Mainpoints of discussion Interpretation of secondarymarket Highlightsomemodellingchoices: assumethat new issues of ABS havethesamedistributions of returnsover time. Show some data Collateralvalues Interestrates
Interpretation of SecondaryMarket Mortgages Car Loans StudentLoans CreditCards Sells ABS (withpossiblycomplexpayoff) Buysassetswitha cost q ABS Originator Buyer
Interpretation of SecondaryMarket Mortgages Car Loans StudentLoans CreditCards Sells ABS (withpossiblycomplexpayoff) Buysassetswith at cost q ABS Originator Buyer imperfectinformation perfectinformation
Interpretation of SecondaryMarket Mortgages Car Loans StudentLoans CreditCards Sells ABS (withpossiblycomplexpayoff) Buysassetswith at cost q ABS Originator Buyer imperfectinformation perfectinformation FRAGILE MARKET
Interpretation of SecondaryMarket Mortgages Car Loans StudentLoans CreditCards Sells ABS (withpossiblycomplexpayoff) Buysassetswith at cost q Buyer imperfectinformation perfectinformation Goldman Chari FRAGILE MARKET
Setup of theModel ABS Originator SellsABS Buyer
StaticModel Secondary market exists iff ABS originator sells (is active) Perfect information: only costs matter Assumption on returns
StaticModel Imperfect information (lemmons): there is trade iff
DynamicModel In t = 2 New buyer observes payoff of ABS in t = 1 ABS originator issues ABS with same (π, c) of t = 1 Beliefs μ2 depend on actions and v realizations in t =1
DynamicModel
Dynamic Model: crucial assumptions ABS assembled by originator has always the same (π, c) Otherwise no Bayesian learning → all results collapse Other interpretation: update about whether the ABS originator truthfully disclosed the distribution What if the incentives to lie change over time ?
If I taketheModelSeriously . . .
Illustration of abruptcollapses All ABS collapse in 2007 Auto ABS, creditcards and studentloans revive in firsthalf of 2008 Collapse in september 2008
Whydid auto ABS marketcollapse in 2007?
InterestRates ABS Originator SellsABS Buyer
InterestRates (staticmodel) Payoff sell hold r* InterestRate Marketcollapse