Credit Crisis - Basic concepts & global influence
psychology of risk
findings
general: people react to incentives
people in general are risk-averse
favor lower secure win over higher but less possible win
avoid risks if possible
people assess risk lower if
has no connection to them
it is (hghly) abstract
people assess risk higher if
or if it evokes strong emotions
or if there's a good background story to it
or have a personal link to the risk
they have a vivid impressions of the risk
top expert: Kahneman
Nobel prize in 2002
behavioral psychologist
nice overview
Crisis of the US housing market
CDO is sliced up in good, okay and risky mortages which are seperatly sold to investers, other bankers and "risky bankers"
Untertopic
the investment banker puts them in one box called CDO
risky sub-prime mortgages are bought in high quantatiy by investment bankers
("high risk" and "low risk" mortgages are sold as one big mortgages)
Give loans without checking peoples financial situation
risk
trusting eachother AND passing risk along
--> exp: mortages = bombs
Passing "bombs" to the next
--> not caring about the consequences
Nothing would happen,
because it didnt happen before
exp: no vivid memories
(Kahneman)
bad risk management
Haupt-Topic
Leverage
functionality
profit
pay money + interest back
sell pruduct w/ higher price
buy product
borrow money
widely used
low credit on loans
high profit deal
Germany
single market recession
less money to buy products
econemy relies on exports
no one to import pruducts
exporting less
could suffer worst recession since WWII
