Geithner Plan

To the times at dramatical moments as what we live currently, history finishes for placing an only man on the back of decisions that can finish with crises or aggravate them still more. It seems that in the crisis of subprime already we have the first candidate ' ' to load the weight of the world in costas' ' , he is the Secretary of the American Treasure, Timothy Geitner, professional young that directed until little time behind the Federal one Reserves (central banking of U.S.A.) in New York. Geithner is the face of the plan announced in 23 of March to rescue the banks, to reactivate the economy, to finish with the unemployment, at last, to save the day. A beginning little promissorH weeks, specialists criticized the Government of American president, Barack Obama, when saying that if it had distracted with other plans instead of acting with contundncia in the epicenter of the economic crisis, in the case, me the health of the banking system. In day 10 of February, the stock markets had fallen down when observing, disappointed, that Geithner, convoked the press to speak of the plan and concluded its speech without giving details of the same.

What they are ' ' asset podres' ' – the center of problemAtualmente, the banks in U.S.A. have its accounts ' ' contaminadas' ' for asset the quality, basically tied with the mortgages &#039 to me; ' subprime' ' , it hinders what them to appeal to the credit markets and, therefore, to count on resources enough to loan money to the companies and to the families. The plan of sells at retail – umCom more the market of almost paralyzed credit, the Department of the Treasure of U.S.A. elaborated a plan that recoups the banks without nationalizing them, as the republican legislators ask for. The plan consists of taking off of the rockings of the banks all these assets of the real estate market that do not have liquidity and that they are ' ' contaminando' ' its accounts.

Collateralized Debt Obligations

Be structured in tranches, which are called tranches, ordering, highest to lowest, the probability of default, and the commitment to prioritize the payment to the least bad. That is: 1. I buy a package of MBS, which tells me that the first three MBS are relatively good, the three seconds, very regular and the three others, frankly bad. This means that I have structured the package MBS in three tranches: the relatively good, very consistent and very bad. 2.

I agree that if the tranche will not pay very bad (or as they say these gentlemen, if in the wrong section incur in default), but collecting some of the very regular and quite tranche of relatively good, everything will go to pay mortgages tranche relatively good, thus, automatically, this tranche may be rated AAA. 3. (7 Comment: The "Comments IESE Economic Situation, January 2008, of which I have removed most of what I am saying, we call this" financial magic ") ii. To finish rolling to San Quirze, these arranged in MBS tranches were renamed as CDO (Collateralized Debt Obligations, Collateralized debt obligations), as they could have taken another exotic name. iii. Not content with this, the financial wizards created another important product: the CDS (Credit Default Swaps) In this case, the purchaser, who bought the CDO, assuming a risk of default by the CDO would buy gaining more interest. So, bought the CDO and said, "if it fails, I lose money.

If it fails, recovery plus interest. "Iv. Continuing with the inventions, set up another instrument, the Synthetic CDOs, which have not fully understood, but made a surprisingly high yield.