New CFA Curriculum after Mkt Crisis

No doubt the CFA Institute is going to write/emphasize all of these events into the new '10 , '11 curriculum either through examples, or questions as the Enron debacle was written into the current one with many ‘Mark to Market Accounting’ examples, Off Balance Sheet Financing, and the infamous question “What do you do if you know your CFO is embezzling funds” in ethics and other portions…

there was a really good article about this in the march '08 wilmott edit: not about CFA but the topics that you mentioned

That enron stuff as I recall wasn’t even tested on the exam.

For L2 in 2007, I remember a big section on MBS, CDO, etc., and how they were constructed to spread the risk of the underlying cash flows. Seems quaint now.

I don’t think that the concept of securitization is bad. The problem is that people thought it would remove a lot more risk than it actually did, and that’s because there were all these mortgage originators who had virtually no incentive to do good due diligence on whether these mortgages could be maintained, since they would be sold off to someone else. As a result, assumptions about how many bad mortgages there were in these bundled securities turned out to be wildly off, the correlation of defaults, prepayments, and foreclosures was much higher than anticipated. To some extent, people suspected this, but with so many MBS, CDO, ABS people making nice spreads as asset prices inflated from increased credit, it was practically impossible for people to stay out of it and keep their jobs.

first thing, doing CDS cannot protect your from default as your counter party can default on you too. So you need another CDS for this risk. Then you need yet another CDS … till you don’t have any cash left.

actuaryalfred Wrote: ------------------------------------------------------- > first thing, doing CDS cannot protect your from > default as your counter party can default on you > too. So you need another CDS for this risk. Then > you need yet another CDS … till you don’t have > any cash left. and then you take out a loan?

and now i’m dizzy actuaryalfred Wrote: ------------------------------------------------------- > first thing, doing CDS cannot protect your from > default as your counter party can default on you > too. So you need another CDS for this risk. Then > you need yet another CDS … till you don’t have > any cash left.