Collateral damage: Sizing and assessing the subprime CDO crisis

This paper conducts an in-depth analysis of structured finance asset-backed securities collateralized debt obligations (SF ABS CDOs), the subset of CDOs that traded on the ABS CDO desks at the major investment banks and were a major contributor to the global financial panic of August 2007. Despite their importance, we have yet to determine the exact size and composition of the SF ABS CDO market or get a good sense of the write-downs these CDOs will generate. In this paper the authors identify these SF ABS CDOs with data from Intex©, the source data and valuation software for the universe of publicly traded ABS/MBS securities and SF ABS CDOs. They estimate that 727 publicly traded SF ABS CDOs were issued between 1999 and 2007, totaling $641 billion. Once identified, they describe how and why multisector structured finance CDOs became subprime CDOs, and show why they were so susceptible to catastrophic losses. The authors then track the flows of subprime bonds into CDOs to document the enormous cross-referencing of subprime securities into CDOs. They calculate that$201 billion of the underlying collateral of these CDOs was referenced by synthetic credit default swaps (CDSs) and show how some 5,500 BBB-rated subprime bonds were placed or referenced into these CDOs some 37,000 times, transforming $64 billion of BBB subprime bonds into$140 billion of CDO assets. For the valuation exercise, the authors estimate that total write-downs on SF ABS CDOs will be $420 billion, 65 percent of original issuance balance, with over 70 percent of these losses having already been incurred. They then extend the work of Barnett-Hart (2009) to analyze the determinants of expected losses on the deals and AAA bonds and examine the performance of the dealers, collateral managers, and rating agencies. Finally, the authors discuss the implications of their findings for the “subprime CDO crisis” and discuss the many areas for future work.Debt ; Securities ; Asset-backed financing ; Banks and banking

The trust preferred CDO market: from start to (expected) finish

This paper investigates the development, issuance, structuring, and expected performance of the trust preferred securities collateralized debt obligation (TruPS CDO) market. Developed as a way to provide capital markets access to smaller banks, thrifts, insurance companies, and real estate investment trusts (REITs) by pooling the issuance of TruPS into marketable CDOs, the market grew to $60 billion of issuance from its inception in 2000 through its abrupt halt in 2007. As evidenced by rating agency downgrades, current performance, and estimates from the authors' own model, TruPS CDOs are likely to perform poorly. Using data and valuation software from the leading provider of such information, they estimate that large numbers of the subordinated bonds and some senior bonds will be either fully or partially written down, even if no further defaults occur going forward. The primary reason for these losses is that the underlying collateral of TruPS CDOs is small, unrated banks whose primary asset is commercial real estate (CRE). During their years of greatest issuance from 2003 to 2007, the booming real estate market and record low number of bank failures masked the underlying risks that are now manifest. Another reason for the poor performance of bank TruPS CDOs is that smaller banks became a primary investor in the mezzanine tranches of bank TruPS CDOs, something that is also complicating regulators' resolutions of failed banks. To understand how this came about, the authors explore in detail the symbiotic relationship between dealers and rating agencies and how they modeled and sold TruPS CDOs. In their concluding comments, the authors provide several lessons learned for policymakers, regulators, and market participants.Asset-backed financing

Ancient maize from Chacoan great houses: Where was it grown?

In this article, we compare chemical (87Sr/86Sr and elemental) analyses of archaeological maize from dated contexts within Pueblo Bonito, Chaco Canyon, New Mexico, to potential agricultural sites on the periphery of the San Juan Basin. The oldest maize analyzed from Pueblo Bonito probably was grown in an area located 80 km to the west at the base of the Chuska Mountains. The youngest maize came from the San Juan or Animas river floodplains 90 km to the north. This article demonstrates that maize, a dietary staple of southwestern Native Americans, was transported over considerable distances in pre-Columbian times, a finding fundamental to understanding the organization of pre-Columbian southwestern societies. In addition, this article provides support for the hypothesis that major construction events in Chaco Canyon were made possible because maize was brought in to support extra-local labor forces

Group Virtues: No Great Leap Forward with Collectivism

A body of work in ethics and epistemology has advanced a collectivist view of virtues. Collectivism holds that some social groups can be subjects in themselves which can possess attributes such as agency or responsibility. Collectivism about virtues holds that virtues (and vices) are among those attributes. By focusing on two different accounts, I argue that the collectivist virtue project has limited prospects. On one such interpretation of institutional virtues, virtue-like features of the social collective are explained by particular group-oriented features of individual role-bearers that are elicited by institutional structures or goals. On another account of groups as moral agents unbound by formal institutional constraints, to the extent that group characteristics meet the collectivist requirement, they fail to stand up as virtues in the substantive sense of a character trait. These two positions’ respective drawbacks and insights support a non-collectivist conclusion: Where there is a substantive virtue of some social group, it consists only in certain group-specific attitudes and motives of individuals qua members of that group. I end by outlining some risks in adopting collectivism about virtues as an explanatory or normative doctrine, and suggesting that we can abandon it without embracing an equally undesirable individualism in virtue theory