Assignment 15 Macroeconomics principal agent problem results from agents pursuing their own interests rather than the interests of the principals who hired them Dodd Frank started the process of imposing capital re quirements on investment banks and other non bank financial institutions Mortgage Backed Securities A security backed by people s mortgage payment Basically mortgage lenders sell their mortgage entitlements to Freddie May or Fannie Mack who turn them basically into a bond shadow banking system investment banks money market mutual funds hedge funds and other financial firms that carry out the function of commercial banks not regulated by the fed highly leveraged securitization creation of a new security as a combination of other securities ex mortgage backed security asset bubble the price of an asset is pushed to an unreasonably high level due to expectations of further price gains deregulation The reduction or elimination of government power in a particular industry usually enacted to create more competition within the industry derivative and credit default swaps CDS is a financial swap agreement that the seller of the CDS will compensate the buyer in the event of a loan default or other credit event leverage the use of borrowed money to supplement existing funds for purposes of investment wealth effect the change in the real value of an individual s assets as a result of a change in the asset s price increases the marginal propensity to consume Funding mismatch Borrowing short term funds to make long term investments global savings glut to much saving with respect to investment opportunities Easy Credit buy now pay later effected the economy Subprime Lending lending to home buyers who don t meet the usual criteria for being able to afford their payments
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