Financial Markets Crisis

BUS 332 – Financial Institutions & Markets

UNIVERSITY OF SAN FRANCISCO - FALL 2008

Extra Credit Problem 100 points possible.

Your percentage score on this assignment will either be used in one of three ways: replaces the weight of your lowest quiz; replaces the weight of your lowest problem set; adds up to 10 percentage points to your

midterm grade (not to exceed 100%); or adds up to ten percentage points to your final exam grade (not to exceed 100%). The method that helps your grade the most will be chosen.

Due Wednesday, December 17th

Listen to the podcast of the NPR radio show This American Life Episode #355 “Global Pool of Money”, which addresses many issues surrounding the genesis of the current financial crisis.

Your assignment is to write a 2-3 page typewritten paper in which you tie together the stories and issues discussed in the program with the models and theories discussed in class and the textbook.

Summary

* First, I will provide an explanation of the current credit crisis with the core principles of money and banking (Time has value, Risk requires compensation, Information is the basis for decisions, Markets determine prices and allocate resources, Stability improves welfare), how they relate to the stories in the program.

* How the efficient markets theory can explain the situation the main characters in the story are in today.

* I will analyze the lending operations the banks have engaged in until the mortgage crisis erupted, the impact on their balance sheets and off balance sheet activities and the risk management issue.

* Then, I will describe the pricing and the risk assessment methods used for the Mortgage backed securities and of the Collateralized Debt Obligations.

* America’s monetary policy in the last decade and its consequences on the financial markets and day to day life of the Americans.

The mortgage crisis, which in turn became a credit crisis, came as a surprise to many Americans. But while some of...