YouSaid · the spoken record

Mustafa Chowdhury

lines on the record: 93
first: 2023-03-19
most recent: 2023-03-19
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Not having to market setting it up so that they don't have to mark to market. And it's okay to do that. If you thought that the Fed was done in 200 basis point or 300 basis point because, remember they were well capitalized from the beginning. So they thought that, oh, a couple of hundred of basis point, a hike, I don't want to waste any money hedging, I may as well put it in the HTM account where I don't have to mark to market so I don't have to hedge and after some time the Fed will stop hiking and we'll be all fine. So that's the preparation going into the hike. For mostly mid tier banks, but some of the big ones too and the small ones too. It's just across the board there was when I looked at the chart from the FBIC's data, it showed about $1.5 trillion just relocated into the health to maturity account.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“Which included the 2.6 to 2.7 trillion dollars of MBS. Instead, I'm not saying all. As an industry, what they did, they moved a chunk of it from available for sale account where they have to mark to market to the health to maturity account where they don't have to mark to market.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“Assets out of the twenty three trillion dollars of balance sheet, that has the optionality risk or very high negative convexity because most of these are 30-year maturity. At least the securities portion is 30 years maturity. So the banking system, and I think that's a mistake that shouldn't have done so when the drum bits of fed hikes were happening in second half of 2021, and then later in third quarter, Chairman Powell suddenly said that, oh, it's not transitory, it's actually permanent. There was several months of scope for banking system. To put on hedges on some of these highly negative Likonvex portion of their securities portfolio.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“And so it's just that the rest of the banking system, the deposits are possibly less flighty than Silicon Valley, but not as flighty by flighty, I mean how fast it can be withdrawn, but it still could surprise the system how flighty it can get for the overall banking system. So the overall American banking system, if you look at their balance sheets, it's about 23 trillion dollars of assets in the whole system. Many times larger than Freddie Mac or Fannie Mae was, of course. Out of the 23 trillion dollars 2.6 to 0.7 trillion are MBS portfolio, just mostly Freddie, Fanny. There's not a lot of worries about credit risk. And another two and a half-ish trillion dollars of mortgage loans that hasn't been securitized, but still has similar characteristics of That can be prepaid, etc. So five trillion. Bit more than 5 trillion.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“I said that you will never have to sell them that reflects not understanding tail risks because you may have to sell them because extreme things happen. And so if security is very complex, It's better to know the complexity, know the risk of losing money, and know the tale scenarios rather than decide not to know it, thinking that it's not going to happen. So just this whole assumption of we will never have to sell it is okay in a moderate range of interest rates, not okay in extreme interest rate changes. Silicon Valley's problem really triggered this because of the flighty deposits they had, but the risk that Silicon Valley Bank had in their balance sheet is not uncommon in the banking system.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“Available for sale. Is there marking them to market and hold to maturity? Is they're saying we're not going to sell these at all and we're going to be paid $100 at the end of it. So we're not going to be marking them down to 90 cents on the dollar, 80 cents on the dollar if interest rates rise. And then people say the hold to market maturity portfolio is not interest rate hedge and is supposed to not be interest rate hedged because they're never going to have to sell them. What do you say to that?”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“If I were running this, I would smell the risk right away because I have seen this, I've lived on my life, and I know how this can bite. And so I would have completely differently addressed this. The idea of just doing accounting stuff moving from AFS to HTM, thinking that that will weather me from Fed hikes just reflects inexperience. I don't want to be judgmental, but it reflects inexperience. And it's a big time problem in the banking system today. Lack of experience with interest rate risk. And I can extend some of these dances that we are talking about to many banks.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“Precisely. And I think it just reflects inexperience because most of the last time interest rate risk was a thing was 20 years ago. So most people running and making these decisions haven't seen the interest rate risk biting them”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“Yes, so they did not have any hedges on or very few hedges on for those securities treasuries, mortgage-backed securities that were in the available for sale and hold to maturity. Hedges that if they were on would have netted them some profit to generate additional capital during the hard time of 2022.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“I don't know whether it's negligence. I would say Really, not knowing some of it, is it new? So it's hard to predict. And that the part that is hard to predict and something new is that the speed with which deposit flew out of Silicon Valley Bank wasn't modelable or even predictable, in my opinion. Only intuition common sense would have predicted it. There is no model that would have helped. So that part is something new. Even then, the part that they didn't hedge at all, their AFS and HTM portfolio, its endemic in the banking system. And I wouldn't say negligence, but it may be inexperience with interest rate risk.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“For the silicon value bank, it was minuscule. Just looking at the balance sheet, the off-balance sheet items, it looked like a minuscule amount of swaps in their balance sheet. I don't know what those minuscule amount of swaps was for, but you can safely assume that there wasn't much of a hedge.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“I must say that we started the large scale use of swap shins for mortgage portfolio. Prior to that, the swap and swap shion market in the 80s was much smaller to hedge basically debt insurance when underwriters issue corporate debt, they would hedge some of that in time of issuance. But this type of trillion dollar scale swaps should market started by Freddie Mac.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“Yes, yes, it was a difficult exercise because mortgages have very complex optionality because it's very behavioral and you hedge it with simpler optionality like swapshins and treasury options. And so that means that you will have to make a lot of assumption about how fast, how slow homeowners will refinance, et cetera, and then match it. And there's a science, but there is also a trial and error aspect of it. And it worked out really well to the types of optionality that we used at Freddy Mac and how it helped hedge the mortgage portfolio really well in the rally throughout the 90s. But yes, I”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“Right. And so by the time you started at Freddie Mac, the use of interest rate swaps, that was already a thing, euro dollar market off, LIBOR, stuff like that. But minor saying you really were at the forefront of using swap shuns, an option to enter an interest rate swap. And so that has positive convexity to offset the negative convexity of the mortgage book.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“Perfect, Jack. You just described it perfectly. The duration sounds like time, but it's better way to just think about it. It's just a sensitivity to interest rates. What percent your bond will increase in value if interest rate goes down by a percent.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“Maturity is when you get paid back on the fixed income. Many mortgages in the US are 30 year maturities duration, and this confused me many times, sounds like it would mean maturity, and it is related to maturity, but it actually refers to interest rate sensitivity. So as interest rates go up, how much do you lose? When interest rates go down, how much do you make? And then convexity is the rate at which you lose or make money. And the thing about mortgages is as interest rates go up, you lose more and more money. And the rate at which you more money per basis point, I guess, goes up in the same way that if you're short of stock at $10 and it doubles and goes to $20, you use $10. But if it doubles again, goes to $40, you lose $20, right? So that's negative complexity.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“Flight to quality trades or all the other things that were happening at the same time, then a couple of years later there was a dot-com bast. And again, after the dot-com bast rate in the United States went down even lower. It went really low. So at that point, all optionalities went through the strike and swapshans gain billions and billions of dollars in value. To offset any sort of mortgage negative convexity losses. So the first was that Freddie Mac actually gained a lot when most other institutions lost from the negative convexity or from large scale refinancing that happened post-com crisis.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“If you remember in the nineties we had, as introsate kept going crowd. Since the mid eighties interest rates have been going lower and lower and lower. So when I was managing convexity at Freddie Max portfolio, the average coupon of the portfolio is about $7.5% mortgage rates. And then it gradually declined to six and a half and lower. And as it's going down, preparements were happening. Freddy Mac is hedged and ready. After the LTCM crisis, interest rate went down in big one big step.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“Use of swaps was basically introduced at Freddie Mac where a large number of received fixed options were added to the portfolio and large number of pay fixed options were added to the portfolio. So when rates declined and there was a lot of refinance, the swapshans gained a lot of value to offset the losses in the market value of the mortgages. Similarly, Ferdimac would have Swaps that do well in higher interest rates, protecting high interest rate scenarios as well. So a multitude of optionality mostly swaps but options and treasuries etc but large scale use of optionality in hundreds of billions of dollars of notional to hedge the convexity of the portfolio. Reddy Mac also used swaps, treasuries, futures, etc. to keep the duration under control. And you don't see the results of your hedge until there is interest rate moves a lot.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“It doesn't matter, it's a loan book, it doesn't matter whether it's reported in financial statements. When you lose money, you lose money. It doesn't. And if you lose small amount, maybe it's fine. If you lose large amount, it shows up no matter what. So Freddie Mac did daily reporting on the mark-to-market of the mortgage valuation. Daily hedging of the duration of the mortgage portfolio and daily hedging of the and then also hedging the negative convexity using a multitude of And often for mortgages, you need to hedge both UFI risk and extension risk. So you have to hedge both increases in rates and decreases in rates. But also Freddie Mac, and that's a Freddie Mac innovation in terms of hedging large amount of mortgages with a large amount of optionality. So Freddie Mac, if a large bulk”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“You need to follow your mortgage portfolio. If you have leveraged your mortgage portfolio with mostly borrowed money, its risk is whatever the individual mortgage convexity risk is times the leverage. So it's very risky. The worst thing that you can do is take those securities and put it in an HTM portfolio and feel that you have minimized risk just because you are not reporting it. And that's the thing that Freddie Mac wouldn't do. Freddie Mac would mark their mortgage portfolio on a daily basis. Freddie Mac would compute their duration of their portfolio on a daily basis, compute their convexity, compute the exposure to changes in volatility on a daily basis. And so because it doesn't matter whether it's health to maturity.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“Right. So there are many causes that contributed to the fall of Silicon Vank Bank, the outflow of deposits in 2022, venture capital is slowing down, the rapid withdrawal, the sale of the available for sales securities, which led to Silicon Valley Bank trying to raise additional capital with Goldman Sachs as their advisor. And my opinion, not yours. I think Goldman Sachs did a very poor job just in the optics. There's the fact that the Fed raised rates to begin with, which. But specifically, let's hone in on this issue of interest rate risk that Silicon Valley Bank had and the degree to which they hedged, or reality they did not really hedge them at all. And I want to compare your 10-year as running the interest rate risk for Freddie Mac, and you did so successfully. A mortgage book about over a little over half a trillion dollars.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“This That's for the whole banking system for For Silicon Valley Bank because they didn't seem to have any hedges or have minuscule amount of hedges that they may have had a bigger extension and also that the fact that the securities book was mostly mortgages that most probably 30-year mortgages, so this extended, not only they lost because of duration, they also lost because of negative convexity. So when they sold those, they realized the chunky loss to pay the depositors, they realized the chunky loss sufficiently for them to find themselves that they are getting undercapitalized. So they went out to borrow, issue more capital, and that's when it was all over the media and depositors just flocked into withdrawing their deposits.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“Account and then they had a smaller amount in the available for sale account and all of that went underwater and they caught off guard without much of hedges. So they had to sell those. It's not clear if I take the mortgage books it could be somewhere 10 to 20 percent maybe longer I looked at a bunch of banks it's the losses are somewhere between 10 mark to market losses are between somewhere between 10 15 average in the banking system is somewhere at 10 to 11 percent overall banking system of their assets but what sorry what's 10”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“Another thing that is a microcosm of a problem for the rest of the banking system. And that's the 125-ish billion dollars of securities that they have in their balance sheet. They put most of them in a health to maturity account, about 100 billion dollars. And the remainder in an available for sale account. It's a problem to have so much highly convex securities in a health to maturity account. What it does is that you don't then market to market so you don't really focus on the losing value in a higher interest rate scenario. And you basically hide the risk as opposed to hedge the risk. And so they decided that's a good way to do it because it's not going to show up on my financial statement anyway if it helps.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“Was higher for the depositors, so they were monitoring it more closely and maybe because they were tech industry checking more connected, same industry more connected. They also, maybe social media that they could share that what's going on in terms of alternative deposit rates, et cetera. So deposits flew very fast, faster than anyone with their wildest imagination. The speed was specific to Silicon Valley Bank, maybe to this industry, but the speed is higher in general for the remainder of the banking sector. I'll come to that later. So clearly deposit ran out and then they realized that they will have to sell some of their assets.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“Not less profitable because deposits are slow to move while their assets are going to go up in yield, so the margin will be higher and banks will do well. That was the expectation. So that also changed, and that's a big one. I will come to that. And that swap was made clear by the Silicon Valley Bank that the optionality on two sides of the balance sheet and both are sort of the It's not just Silicon Valley, it's an extreme case, but the whole system has misestimated both of the optionalities on both legs of their balance sheet. In the case of Silicon Valley Bank, the deposits just maybe because most of the deposits were uninsured so that the”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“And the banks, that's also another source of profitability of the banks. In fact, if you read last two years of bank analysts' projections about bank profitability, they were expecting banks would be more profitable.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“For the GSAs, it was never a problem because they could most often fund because there is some sort of implicit guarantee, so not a concern. For the banking system, typically, they do forecast what will be the deposit, how fast the deposit will fly out in various interest rate scenarios. And you would expect if the interest rate went up and there was a interest rate outside of the bank is much higher, people are going to gradually take their deposit out. So you have to be prepared for that. And banks usually prepare for that through some modeling, etc. And then the models usually similar to mortgages, that there are some inefficiency in option exercise or refinancing. Historically, there is some inefficiency in the speed with which people take deposit out of their account.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“Which is about 120 something billion into very liquid high credit quality agency Freddie, Fanny, Jeannie, mortgages, also Freddie guaranteed multifamily mortgages, treasuries. If you look at those, you would feel that, oh, this can cause a bank to fail. At first sight, there are two interest rate risks that hit them Intracite risk number one, which is this first one is new, wasn't a problem when I was managing interest rate risk at Freddie Mac. And the second one is the old traditional duration convexity mismatch risk. The first one was the cash management deposit. How fast cash flies out of your portfolio? In this case, how fast deposit flies?”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“Well, I can go address the Silicon Valley Bank example and then see how it extends in what way it extends to the overall banking system. For the case of Silicon Valley Bank, it grew very fast from $50 billion asset size to $200 billion plus. So they had a lot of deposits, must have had a lot of deposits coming in in the last year and a half because there have been phenomenal growth. So they put some of that money into a loan portfolio and it's never clear what the composition of the loan portfolio is. And that's where some of the credit interests come from. But that's not caused them problem. The problem for them was that they couldn't lend fast enough. So they put their remainder of the portfolio.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“That's the mortgage game. These are bundled into mortgage backed securities. And when people hear mortgage-backed securities, they think about the big short, about credit risk, subprime loans. What you've been focused on a lot most of your career and what is the issue right now in the banking system is not that issue. It is interest rate issue. A lot of the securities, most of the securities have been securitized by implicit or explicit government guarantee agencies such as Freddie Mac, where you worked Fannie Mae, Jinny Mae. And so let's just go to Silicon Valley Bank. They bought, let's just say, when the 10-year was at 1.5%, the Ginnie May was yielding 2.5% so they got 100 basis point spread. That was trading at $100. Now those are trading at something like 80 or maybe $75 depending. So how responsible do you think is interest rate risk for the panic that we've been seeing in the US regional banking sector?”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“So you lose on both directions and lose loose proposition. You lose when interest rate goes up a lot. You lose interest rate goes down a lot and you are okay if interest rate fluctuates within a range. And that's the mortgage game.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“The duration risk with increasing interest rates, your bonds, mortgages duration gets higher and higher relative to your hedge and so you have a longer duration bond, longer duration mortgage than you had thought initially. So if interest rate goes up You are going to lose value. The first hundred, you lose some value. Then your duration also went up. Then the next hundred you lose more and the next hundred you lose even more. So every successive hundred basis point is different from the previous hundred basis point and that's called in the mortgage world extension risk that the mortgage extends to extreme long duration which in plain English homeowners are not willing to refinance they just hang on to it because they're locked in a very low attractive interest rate.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“If the interest set rise, then you have the opposite problem that the typical bond, the mortgage becomes more like a regular bond where higher interest rate causes decline in the value of the bond. And for any bond, that's not preparable, just a regular treasury bond. If interest rate goes up, the value of the bond goes down. And the reason is that you are locked at the lower interest rate on that specific bond and the market interest rate is higher, so your bond has less value. And this risk of a bond is known in the bond world as duration risk. So when interested goes up, duration risk kicks in. But since you already hedged your bond. Ahead of time.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“Precisely. And so Remember, you're leveraging it, so the convexity, then you lose a lot from the refinancing if really good premium mortgages refinance out of your book”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“So, the preparement risk is not a simple call option like you just exercise and efficiently exercise and you know how to figure this out. Preparement risk is very behavioral. It depends on homeowners, all sorts of homeowners characteristics, geography, how much the down payment they gave events, things like age, the multitude of drivers that are not economic still determine how fast or slow the homeowners would refinance the mortgage.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“Complex optionality, you got the options arising from homeowners who prepare their mortgages. If interest rate goes down, they refinance and they go to another lower interest mortgage. But the investor who is investing in that suddenly Premium mortgage disappears from their book and what they get back is a par, a new one. So that's the loss that they have from the refinancing activity. And if it happens in large scale, then the investor loses a lot of money if the preparement ends up large and unexpected.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“After a few years, I left for the academics and decided to do the real thing. And what else can I go besides a big mortgage portfolio? Because that's where there is more optionality than anywhere else. So I joined Freddie Mac. Which at that time had a portfolio of MBS in their balance sheet, which they financed with issuing agency debt. And it was something like 250 billion-ish size mortgage portfolio leveraged up 40 to 1 or so. Just the capital was basically regulatory capital. So, the idea is to keep the value of the mortgage portfolio stable. So, my job was to manage that part, what's known in the mortgage jargon, manage the convexity of the mortgage. Mortgage portfolio. The mortgages have extremely complex”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“This subject basically various issues involving portfolio insurance and econometrics of portfolio insurance, etc. So I was into by that time academically I was pretty deep into optionality and the nonlinear, the fact that small changes in interest rates are very different from large changes so the difference is so big that if you're not aware of the small versus large things like that are big deal in the financial world it's just it's a big deal is that small versus large that till this day is not fully understood So I finished my graduate school. I taught for a few years in LSU when Shakir was playing basketball there and taught the same thing, options, futures, and more complex issues involving portfolio insurance in LSU business groups.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“beyond certain level and the way that they would do it is by basically delta hedging a portfolio instead of buying optionality to reduce the downside risk it would just delta hedge early days of grain span the market the shock was very big the the market fell very big so all those insurance didn't make any didn't provide any insurance it just blew up like there's no the insurance had no value then then it just clicked on me that that could be an interesting thing to study it's it could also be very data oriented but also conceptually very very very interesting and very real so i did my dissertation on this”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“When I got interested in interest rate risk, I was going to graduate school at University of California at San Diego doing a PhD in economics, specifically econometrics. And the middle of my graduate school, as I was starting to write my dissertation, there was a big event in the financial sector, which was the known as a Black Monday. Big decline in the stock market. It's etched in history. The thing about Black Monday that really appealed to me was that eventually it was found out that it was created by at that time something that was relatively unknown, something new, which was portfolio insurance, which basically companies would provide some insurance, guarantee some insurance that the value will not decline.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT
“Thanks, Jack. It's great to be in your podcast. It's a great podcast. I always like watching it and listening to it. So it's a great pleasure to be part of it.”
2023-03-19 · Forward Guidance · The Banks Didn’t Hedge Enough | Mustafa Chowdhury · IDENTIFIED FROM THE TRANSCRIPT