US Subprime Mortgage Crisis
Posted in Derivatives on Aug 10th, 2007
For the past few weeks, financial markets around the world have been rattled by the US subprime mortgage crisis triggered by the sharp fall in US housing prices. The collapse that Bear Stearns suffered might just be the tip of the iceberg. How and why has the effects spread so rapidly?
It’s actually a complex story involving subprime borrowers, Mortgage-Backed Securities (MBS), Collateralized Debt Obligations (CDOs), investment bankers, hedge funds, Credit Default Swap (CDS), Synthetic CDOs, institutional investors and even retail investors. Let’s try to look at the whole picture.