Using a newspaper article from the New York Times titled: "Banks Bundled Bad Debt, Bet Against It and Won" from December 23, 2009, answer the following question:
Did the creation of the financial products exacerbate the credit crisis of 2007 (use at least two examples) and the likely impact of the credibility of the ABS market on the investment firms' activities as highlighted in the article?
The information provided by the New York Times does seem to provide information that the creation of "C.D.O.'s" may have played a huge part in the credit crisis that soon followed. "Goldman was not the only firm that peddled these complex securities - known as synthetic collateralized debt obligations, or C.D.O.'s - and then made financial bets against them, called selling short in Wall Street parlance" (Morgenson, 2009, A1). Because these securities were "mortgage-linked debt instruments and then bet against the clients who purchased them" the Federal government is investigating whether laws may have been broken (Morgenson, 2009). Were these risky securities created to not only create a profit for these firms involved, but as a huge risk for clients that may not have seen nor realized the risks involved in these investments? Did these risks put the housing markets on a spiraling default that created a win-win for the company, but huge losses for the clients investing in these securities? It does seem that Goldman may have created C.D.O.'s as a profit for the ...
The expert discusses the credit crisis of 2007.