COMM 329 Lecture Notes - Lecture 12: Credit Default Swap, Syndicated Loan, Loan Sale

• School: Queen's University
• Department: Commerce
• Course: COMM 329
• Professor: William T Cannon

Document Summary

[page 2 second paragraph] sharp increase in losses; apparent difficult in pricing the risks of these loans appropriately, getting appropriately compensated for the risks. [top of page 4]: they have an expertise in a particular industry, and can make the best loans in a particular field. Banks make the loan, and make a good loan! [page 9: why are most loan sales arranged on a without recourse basis today, what are the unique features of loan participants versus those of loans sold through. The first participation in a collateralized debt obligation, it is called a real cdo . If you are selling a basket of cdss, it is a synthetic cdo. Get the investors for a cdo first; guarantee some money in advance: then you build out the loans, then you ask for the money for the cdos, enjoy the returns. Three motivations for creating cdos: arbitrage, b/s, strategic diversification.