The Role of investors and bankers

Running Head: Macroeconomics Questions

Macroeconomics Questions:

Name:

Institution:

1.The role of Investor Bankers and the concept of Collateralized Debt Obligations/Subprime mortgages

The investor banker is responsible for the sale or issuance of new securities or what we call the primary issue, to raise funds. He purchases the primary issue from cooperations and plans for the resell immediately to the investors. The investment bankers perform three functions namely; investment research and analysis, underwriting and distribution.

Collateralized Debt Obligation (CDO) is a security whose worth is backed by a pool of cash flow generating assets and repackages them into portions that can be sold to investors. This investment yields regular returns and the payment is based on the pools performance. This is the financial instrument that most traders use to sell securities that individually would be hard to sell for instance payments from subprime mortgage. As part of the diverse pool, these securities represent a small portion of total value of the underlying assets making it lucrative to potential customers (Slovik, 2011)

2.

a) The economic impact of Subprime crisis.

The subprime crisis happened when banks sold many mortgages to meet the demand for mortgage-backed securities. The house prices declined in 2006; it resulted to defaults. The risk spread into mutual funds, the pension funds, and the derivative owning corporations. Its economic impact was the 2007 banking crisis, the 2008 financial crisis, and the Great Recession and this was the great recession since the great depression (Hera, 2010). The monthly payments for those who had interest and subprime loans dependent on the fed funds rate and those homeowners who didn’t make it purchase conventional mortgages applied interest only loans which had lower monthly payments. As the houses prices fell, many customers realized that their homes worth did not tally with the value of their money that they paid for. In parallel, the interest rates hiked along with the Fed Fund Rate. Consequently, the home owners were not able to pay the mortgage nor sell the home for profit thus they defaulted. The rising rates led to the slackened demand.

b. The plan of Alan Greenspan,Chairman, Federal Reserve

Alan Greenspan Chairman Federal Reserve proposed the waiver of the interest rates to only 1% to keep the economy strong. It is a very low return on investment thus the investors said no. I think the plan led to the housing crisis. The new borrowing then was pumped into housing. The low-interest rates spur home purchasing

C. outline of credit crisis in US housing market in 2007

The financial crisis of 2007 in the US housing market was the biggest since the Great Depression and realigned the world of housing finance market and the investment banking. The crisis was due to the combination of the debt and mortgage-backed assets, the house a price in the US has been raising steadily with few fluctuations though the trend has remained upward. The crisis was as a result of the explosion in the issuance of bonds backed by mortgages that are the mortgage backed securities. Reason being the use of securitization in the pooling of debt and then the issuance of assets based on debt. Collateralized debt obligation (CDO) is the repackaging of the mortgage after being bought from the issuers and sell off specific tranches of debt to the investors.

Narvik, the Ice Free Port which is in Norway related to the Wall Street in the sense that there was housing market crisis in both. This was due to the credit crisis that began due to the subprime mortgage market spreading to most parts of the world affecting the economy. The two leveraged advantage of decreased loan interest rates and borrowed more using future energy revenue as collateral. They invested the money in diverse securities. As the market deteriorated, the investment declined in value.

d. Daniel Sadak

He is the founder of the collapsed subprime lender quick loan funding. He is also a renowned producer and writer in the USA. He made and lost a fortune in the subprime mortgage which collapsed (Carney, 2009).

The Role of Greed in Market Collapse

Greed role in the market collapse was the contribution of credit markets nearing to paralysis. The individual consumers were being denied loans for mortgages. His business interest played a central role making ever large gambles.

3.

Bitcoin is the electronic currency in which high level encryption has been applied to regulate units of currency generation and funds transfer verification. It doesn’t have or rely on the central bank. The money exchange process is virtualvia software. It originated in 2008 released by Satoshi Nakamoto as a white paper, he pointed out the idea as peer to peer way of electronic cash to the universe. He was solving the issue of money copying. The first ever Bitcoin dubbed Genesis was launched in 2009 allowing the original mining of Bitcoins. The first ever transaction took place between Satoshi and Hal Finney who was the developer and the cryptographic.

The Bitcoin works in this way; as a new user you are supposed to install the Bitcoin wallet on your device be it the computer of the phone, then it will generate your Bitcoin address, and you can always create more addresses when you need them, and it is allowed to disclose them to your friends in which they can pay you. The block chain is shredded public ledger on which the Bitcoin network and customers depend. The transactions are shown in the block chain. Transfer of value between Bitcoin wallets that are shown on the block chain. Mining is the distributed consensus system which is used to confirm the pending transactions by showing in block chain (Glantz, 2014)

Bitcoin is a threat to the existing monetary system around the globe. It encourages money laundering which then will affect other monetary institutions leading to them making a loss. It could also affect the consumer's behavior in future and producers and change the monetary policy relevance.

References

Carney, J. (2009). Thugs Mount on Subprime. Business Insider.

Glantz, R. (2014). Pantera Primer. oxford press.

Hera, R. (2010). Forget about housing, the real cause of the crisis as OTC Derivatives. Business insider, 25.

Slovik, P. (2011). Macroeconomic Impact of Basel III, OECD. oxford press.