Inside Job (51 page)

FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC)
An independent US federal agency that insures the deposits of federally chartered banks and savings
banks, as well as state-chartered institutions that elect to join the Federal Reserve System. It is financed entirely by the insured institutions. To prevent insurance losses it examines the books
and safety of insured institutions; if an institution does fail it has the power to take over, reorganize, sell, or otherwise dispose of such institutions in order to recover its insurance
payouts.

FORECLOSURE
The legal process by which a mortgage lender takes ownership of a property securing a defaulted mortgage.

FREDDIE MAC
Short for the Federal Home Loan Mortgage Corporation (FHLMC), a US government-sponsored enterprise that provides financing for the
home mortgage market.

GLASS-STEAGALL ACT
The Banking Act of 1933 that, among other things, prohibited US commercial banks from underwriting or dealing in most types
of securities, and prohibited banks from affiliating with securities firms. In 1999 the Gramm-Leach-Bliley Act repealed the provisions of Glass-Steagall that prohibited affiliations between
commercial banks and securities firms.

GRAMM-LEACH-BLILEY ACT
The 1999 US law repealing provisions of the Glass-Steagall Act prohibiting affiliations between banks and securities
firms.

HEDGE FUND
A privately owned investment vehicle exempted from most regulation and oversight; generally open only to high-net-worth investors.
Hedge funds follow a great variety of investment strategies that may or may not involving hedging.

LEVERAGE
A measure of the extent to which an asset is financed with borrowed money. A $100,000 home that is purchased with $10,000 cash and a
$90,000 mortgage is leveraged at ten to one (the home value divided by the homeowner’s equity). The danger of leverage becomes clear when asset prices fall. If the value of the home dropped
to $80,000, the homeowner would have lost his or her entire cash investment, and could not cover the mortgage even by selling the home. Investment banks like Lehman Brothers were typically
leveraged at thirty to one before the crash ($3 billion in assets would be financed with $100 million of equity and $2.9 billion of borrowings). To make matters worse, the borrowing was often
short-term, so it had to be paid back in full and refinanced several times throughout the year. When financial assets plummeted during the crash, many Wall Street firms were immediately
insolvent.

LIQUIDITY
The state of availability of cash or financial instruments that can be quickly converted to cash.

LIQUIDITY PUT
A financial contract that requires one party to refinance or purchase an asset held by the other party under certain
conditions.

LOAN-TO-VALUE RATIO (LTV)
The ratio between the principal amount of a mortgage or mortgages and the market value of real property securing the
mortgage(s), usually expressed as a percentage.

MARK-TO-MARKET
An accounting convention by which the carrying values of securities are regularly adjusted to reflect their current market
values.

MORTGAGE-BACKED SECURITY (MBS)
A credit instrument supported by residential or commercial mortgages. An MBS may or may not be structured. (See
entry for collateralized debt obligation.)

OFFICE OF THE COMPTROLLER OF THE CURRENCY
An arm of the US Treasury Department that charters, regulates, and supervises all national banks and
certain branches and agencies of foreign banks in the US.

OPTION-ARM
An adjustable rate mortgage, usually with a “teaser”, or below- market initial interest rate, that allows borrowers, at
their option, to make lower than scheduled payments during the early years of the loan. When the rate is reset to a market rate, the accumulated payment shortfalls are added to the loan
principal.

PRIVATE-LABEL SECURITIES
Mortgage-backed securities constructed and distributed by private investment banks and securities dealers (as opposed
to MBSs distributed by Fannie Mae, Freddie Mac, or other US government mortgage agencies).

SECURITIES AND EXCHANGE COMMISSION (SEC)
Independent US federal agency responsible for protecting investors by enforcing federal securities
laws, including regulating security and security options exchanges, broker-dealers, investment companies, and other securities professionals, and the issuance and sale of securities.

SECURITIZATION
The process of pooling mortgages, credit card receivables, or other instruments in a separate legal entity to secure the issuance
of new financial instruments to investors.

SHADOW BANKING SYSTEM
Nonbank financial institutions, like hedge funds, private equity funds, mutual funds, and other investment vehicles, that
often provide credit and perform other activities that parallel the formal banking system. The ballooning of the shadow banking system in the 2000s made it difficult for regulatory officials to
track the volume of credit in the financial system.

SYNTHETIC CDO
A collateralized debt obligation that is constructed of credit default swaps rather than of real securities. By using synthetic
CDOs to reference very high-risk real CDOs, Wall Street greatly increased the volume of very risky assets in the market.

TRANCHE
The French word for “slice”, used to refer to the various layers of securities making up a structured financial
instrument.

UNDERWRITING
The process of determining the risk and value of a security. Investment banks underwrite securities when they evaluate the
creditworthiness of issuers and establish a price for distributing the securities to investors; mortgage lenders underwrite mortgages by evaluating the creditworthiness of the borrower and the
market value of the underlying property.

WRITE-DOWN
An accounting process by which the value of an asset is reduced from a previous accounting value. Frequently, when a company writes
down an asset, the amount of the write-down must be deducted from reported profits.

INDEX

ABACUS 2007-AC1 (AC-1)

ABN Amro

ACA Management LLC

Academia

Accounting fraud

Accounting profession

Ackman, William

Adjustable-rate mortgages

Advertising, political

AEBI

Afghanistan

Agribusiness/food industries

AIG

AIG Financial Products (AIGFP)

Air Products and Chemicals

Alcoa

Alliance Capital

Alt-A loans

Amazon

Ambac Financial Group

American Economics Association (AEA)

American Express

American Home Mortgage, Inc. (AHM)

Ameriquest

Analysis Group

Antitrust policy

AOL/Time Warner

Apollo Management

Apple

Armstrong, C. Michael

Arthur Andersen

Asian financial crisis

Associates First

AT&T

Auction-rate securities (ARS)

Bachmann, Michele

Bain Capital

Bair, Sheila

Baker, Meredith

Bank of America

Bankers Trust

Banking industry. (
see also
Financial criminality; Investment banking)

Banking industry

Barber, Benjamin

Barclays Bank

Barclays Capital

Barings Bank

Bear Stearns

Bebchuk, Lucian

Beneficial Finance

Berkeley Research Group

Bernanke, Ben

Big Short, The
(Lewis)

Birkenfeld, Bradley

Black, Leon

Black Monday

BlackRock

Blackstone

Blakey, Robert

Blankfein, Lloyd

Blodget, Henry

Bloomberg News

BNP Paribas

Boehner, John

Boesky, Ivan

Bogle, John

Bonuses

Bookstaber, Richard

Born, Brooksley

Bowen, Richard

Brattle Group

Brazil

Breuer, Lanny

Bribery

Broadband infrastructure

Brookings Institution

BT Securities

Budget deficits

Buffett, Warren

Burma

Bush, George H. W.

Bush, George W.

Bush, Neil

Bush administration

Cain, Herman

California

Callan, Erin

Campaign contributions

Campbell, John

Canadian Imperial Bank of Commerce (CIBC)

Canopy economy

Capone, Al

Car industry

Car loans

Carlyle Group

Carter, Jimmy

Case-Shiller US National Home Price Index

Cassano, Joseph

Cayne, Jimmy

CDOs (
see
Collateralized debt obligations (CDOs))

CDSs (
see
Credit default swaps (CDSs))

Center for Responsive Politics

Centerview

Cerberus Capital Management

Certificates of deposit (CDs)

Channel Islands, tax evasion and

Charles River Associates

Charles Schwab, Inc.

Chase Bank
n

Chemical Bank,
n

Chicago Board Options Exchange

Child poverty

China

Christ, Carol

Chrysler Corporation

Citigroup

Civil lawsuits

Class-action lawsuits

Clayton Holdings

Clinton, Bill

Clinton administration

Cohan, William

Cohn, Gary

Collateralized debt obligations (CDOs)

Collateralized loan obligations (CLOs),

Collateralized mortgage obligations (CMOs)

Columbia Business School

Commercial banking (
see
Banking industry)

Commodity Futures Modernization Act of 2000

Commodity Futures Trading Commission (CFTC)

Common Cause

Community Reinvestment Act

Compaq

Compass Lexecon

Compensation

Computer industry

Conflicts-of-interest

Consulting firms

Consumer electronics industry

Corporate taxes

Corzine, Jon

Council on Foreign Relations

Countrywide Financial Corporation

Covington & Burling

Cox, Christopher

Craigslist

Crandall, Robert

Cranston, Alan

Credit cards

Credit default swaps (CDSs)

Credit scores

Credit Suisse

Credit Suisse First Boston

Credit unions

Criminal asset concealment

Criminal prosecution

Criterion

Cruz, Zoe

Cutler, Chris

D.E. Shaw

Daiwa Bank

Dean Witter

Decade of Greed

DeConcini, Dennis

Deficit spending

Del Monte Foods

Dell Computer

Democratic Party

Demon of Our Own Design, A
(Bookstaber)

Denmark

Deregulation

Derivatives. (
see also
Credit default swaps (CDSs))

Deutsche Bank

Dillon Read Capital Management

Dimon, Jamie

Dirksen, Everett

Dodd, Chris

Dodd-Frank law

Donilon, Tom

Dot-com stocks

Drexel Burnham Lambert

Drug cartels

Dudley, William C.

Due diligence

Early payment defaults (EPDs)

eBay

Ebbers, Bernie

Education

Education Management Corporation

Ehrlichman, John

80/20 piggyback loans

Einhorn, David

Eisenhower administration

Eitel, Charlie

Ellison, Larry

EMC Mortgage

Employment cheques

Energy industry

Enron Corporation

Ernst & Young

Estate agents

Estate taxes

Estée Lauder

European sovereign debt crisis

European Union

Extremist political movements

Facebook

Fagell, Steve

Fannie Mae (Federal National Mortgage Association (FNMA))

Federal aid disclosure regulations

Federal asset seizures

Federal bailouts

Federal Bureau of Investigation (FBI)

Federal Deposit Insurance Corporation (FDIC)

Federal Home Loan Bank Board

Federal Housing Administration

Federal Reserve