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In 2007 investors lost confidence in the structured products created from US subprime mortgages. This led to a ‘credit crunch’ and losses of tens of billions of dollars by financial institutions

In 2007 investors lost confidence in the structured products created from US subprime mortgages. This led to a ‘‘credit crunch’’ and losses of tens of billions of dollars by financial institutions such as UBS, Merrill Lynch, and Citigroup. Structure: 1. Describe the case. How the institution incurred such big losses? a. Describe the positions taken by the institution or trader. b. Describe how the institution or the trader expected to profit or what risks they wanted to hedge. c. Why losses occurred? Describe the mechanism and timing of losses. 2. Describe the outcome of the losses. a. How traders were disciplined? b. Did the institution go bankrupt? If not, did it recover afterwards in terms of profitability or market capitalization? 3. What can be learned from the case? a. Describe measures suggested to prevent the recurrence of similar losses in the future. b. Were suggested measures implemented at the institution or elsewhere? c. In your view is it realistic to implement these measures in the future? What interests or factors would work for or against these measures? you can include charts, Graphs, tables

May 01 2020 View more View Less

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