Financial Stability, + Website

CHAPTER 9 Paradise Gained, Lost, Regained, and Destroyed (1992 to 2008)

In The Law and Economics of Financial Markets, the authors detail not only the construction and terms of stand-alone CMOs and other instruments, but also follow the money and track the trails of schemes generated during the period up to the date of that book’s publication (Feldkamp, Lane, and Jung 2005). Covering all aspects of this time period is beyond the scope of any writing worth reading at this point. Much still remains to be done before we will know if the good created can be preserved despite all the bad that resulted from manipulation of the structures that create financial stability. Only then can a truly balanced history be compiled.

In the next section we provide an overview of empirical data compiled in five graphs, as well as a summarizing table. Much of this analysis is based on Fred’s daily market observations (made in real time and transmitted regularly to global financial leaders), despite knowing the perils of that enterprise. Some readers will surely say the commentary misses important details. Others will find the summary overbearingly complex. To both groups, we apologize. This discussion is based upon a library of transaction documents that structured perhaps $3 trillion worth of funds flows during this period. That collection, however, is miniscule compared to all the contractual rights accumulated for investment participants.

EQUILIBRIUM ACHIEVED—JUST IN TIME

Figure 9.1 tracks ...