The Rise and Fall of Structured Finance

In: Business and Management

Submitted By beavonk
Words 3784
Pages 16
The rise and fall of structured finance
Abstract
The financial crisis of the year 2007 and 2008 saw the world affected negatively with the economy affected adversely (Smith & Mendoza, 2011). Several scores have been directed to increased demand in the housing sector while other have resulted in concluding it was the failure of the financial regulation authorities. The severe effect caused the United States economy job market loss approximately 8 million workers as the inflation rate declined to near zero. The main purpose of the paper is to give clear insights of what caused the increase in the structured finance market and eventually its fall.
In this study, the researcher set out to show that only securities that exhibited confidence when underlying them and how they attracted investors by making them appear as high paying. The study will also go an extra mile in explaining the correlation that is existing in the financial market components. Applying the structured prototype in security of finance, the researcher uses CDO (collateralized debt obligation) in illustrating that issuance of capital structure increases the likelihood occurrence of under evaluating of underlying securities and evaluation of risks. The researcher obtains data from secondary sources and Wall Street Journals. The results obtained indicated that credit rating agencies over rated their credits against collateral securities leading to miscalculation and wrong presumptions that saw the economy rise and then come down tumbling (Smith & Mendoza, 2011).
Introduction
Structured Finance purpose is to pool in together economic assets generally referred to as financial assets such as the mortgages, bonds, loans and issuance of mortgages and prioritized structures claims that include the tranches given against the collateral pools. Several of the manufactured tranches are safe due to…...

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