Exact(40)
According to the European Spreadsheet Risk Group, spreadsheets were behind the collapse of the Jamaican banking system in the late 1990s, and their use was key in the development of collateralised debt obligations – the financial instruments that promised sub-prime mortgages could somehow become AAA-rated investments.
The engineers designed derivatives and securitisations, from simple interest-rate options to ever more intricate credit-default swaps and collateralised debt obligations.
It would also draw a clearer distinction between safety (insured deposits) and risk (uninsured investments).Critics of China's shadow banking like to compare WMPs to the collateralised debt obligations at the heart of the global financial crisis.
Funds from collateralised loan obligations (CLOs)—highly leveraged structures underwritten by investment banks before the financial crisis were invested in the loans that financed leveraged buyouts.
They were accused of being, at best, naive about the safety of complex structured products such as collateralised debt obligations (CDOs) and, at worst, being less than impartial because of the fees they got from issuing CDOs.Now companies such as Standard & Poor's, Moody's and Fitch are back in the limelight.
Collateralised loan obligations (CLOs) are backed by a portfolio of loans, usually those raised by private-equity groups for takeovers.
Similar(20)
Writing swaps on collateralised-debt obligations linked to mortgage-backed securities is a long way from pricing the risk of a hurricane or flood ravaging a factory.Mr Sullivan did himself no favours by mismanaging expectations.
Spreads have dramatically widened on the securities backed by riskier mortgages and the pooled and debt-laden collateralised-debt obligations (CDOs) based on them.
In contrast, issuance of collateralised-debt obligations (CDOs) has fallen dramatically.
And in this crash foreign-exchange, interest-rate and equity derivatives models have so far behaved roughly as they should.A muddle of mortgagesYet the idea behind modelling got garbled when pools of mortgages were bundled up into collateralised-debt obligations (CDOs).
Its estimate of an $8 billion-11 billion fourth-quarter hit on its collateralised-debt obligations was made in early November, since when the market value of subprime-related debt has declined further.
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