Don Vandewalle, Ph.D.
Don Vandewalle, professor at SMU's Cox School of Business, provides a list of financial terms [pdf] that are referenced in this year's common reading. Professor Vandewalle also cites Marketplace's Untangling Credit Default Swaps and PBS' Money, Power and Wall Street as additional resources to consider when reading Michael Lewis' The Big Short: Inside the Doomsday Machine.
Financial Term Definitions
Bond: A note obliging a corporation or governmental unit to repay, on a specified date, money loaned to it by the bondholder. The holder receives interest for the life of the bond. If a bond is backed by collateral, it is called a mortgage bond. If it is backed only by the good faith and credit rating of the issuing company, it is called a debenture.
Credit Default Swap (CDS): The buyer of a credit swap receives credit protection, whereas the seller of the swap guarantees the creditworthiness of the product. When this is done, the risk of default is transferred from the holder of the fixed-income security to the seller of the swap. For example, the buyer of a credit swap still is entitled to the par value of the bond from the seller of the swap if the bond defaults in its coupon payments.
Mortgage: A debt instrument that is collateralized by real estate property; the borrower (mortgage owner) is obliged to pay back both the principal and the interest with periodic payments over the course of the loan. Mortgages are used by individuals and businesses to make large purchases of real estate without paying the entire value of the purchase up front. Mortgages also are known as liens against property and claims on property.
More definitions >>
Steve Sverdlik, Ph.D.
When people think about ethics they commonly do so by using familiar rules and principles like ‘lying is wrong’ or ‘stealing is wrong’. For many people in many circumstances this is perfectly reasonable. Philosophers who investigate ethics often claim that relying on such everyday rules cannot be a completely adequate way to think about these matters. For one thing, some of the specific rules accepted by one person or group are not accepted by other persons or groups. Read more >>
As this story makes clear, there have been very few criminal prosecutions of people involved in creating the risky securities that are central to the events in The Big Short. Notice too, that the prosecution under discussion is taking place in mid-2012, some five years after the collapse of the mortgage security market began. Also, the defendant in this prosecution is described as being midlevel. It is interesting to think about why this prosecution has taken this long, and why no officials higher in the corporation are being charged with crimes. Read the full story here >>