EconAir

You go around to farmers with cows. You buy all the cows and pay the farmers a small fee to milk the cows and sell the milk. You pay for the cows with ass(et)-backed securities called MBSs (Milked Bovine Securities) that you tell investors are udderly safe. But some of the cows don't give enough milk (cow flow problems) or give no milk at all. You take some of the asset-backed securities, say they're backed by the subprime cows, and use them as collateral to sell another set of securities called CMOs (Cow Milk Obligations). Then you buy CDSs (Cow Dried-up Swaps) from AIG (Angus Insurance Company) to insure the CMOs when the cows stopped giving milk. If you work it right, you collect more on the CDSs than you pay out to retire the CMOs. The money you get from selling the dead cows go to pay the CLOs (cow leather obligations). You could also sell CDOs (cow dung obligations) that depend on how much cow dung is produced. This is a typical Wall Street product - turning s...

I've been asked to define some financial terms and comment on the current financial crisis and coming recession. -Financial institution (is it any bank or stock broker?) -Investment bank ( I never understood why Goldman Sachs was considered a kind of bank) -Systemic risk -Counter party risk -Mortgage backed securities vs. mortgages (does a mortgage become a security when it's bunched up with a lot of other mortgages so a person can invest in the whole bunch?) -Hedgefund -Relationship between hedge funds, short selling and credit default swaps. Financial Institution - any company that deals in finance - money, credit, stocks, insurance. It could be a bank, stockbroker, insurance company, hedge fund, credit card company, mutual fund company, etc. Even half of GE is a financial company. Investment bank. In 1934, the U.S. government passed a law dividing banks into commercial banks and investment banks. That law has since been repealed so there is a lot of overlap...