Gary Trennepohl, president of the University of Oklahoma-Tulsa, offered these potential stories to the Strictly Financials fellows, following up on the credit crisis and market crash of 2008:
- What is the future for the smart securitization of assets? Who will regulate them, and who will rate them?
- Is there another crash coming in the housing market?
- What will happen to commercial real estate? Some are calling it the next shoe to drop. Commercial property prices have declined 42 percent over the past two years. Fifty-five percent of commercial mortgages that will mature in the next five years are underwater, meaning the property is worth less than the amount of the loan. The delinquency rate in October was 5 percent, versus 1 percent a year ago. (These stats are from The Business Insider, Nov. 16, 2009: MIT statistics.) Most commercial real estate lending is done by local banks, who avoided the problems with mortgage-backed securities. How are banks in your area affected by commercial real estate loans? Is your pension fund, hedge fund or other institutional investor exposed to real estate losses?
- What happens when people walk away from their mortgages?
- Will another financial crisis ensue as mortgages are recast with more favorable terms for borrowers? This is one reason the government is so concerned about keeping interest rates low, which also means a weak dollar.
- Will the Federal Reserve regulate the market for credit-default swaps by forcing trading in them to an exchange? Who will regulate them? A credit-default swap is a contract between two entities called counterparties. The buyer pays premiums to the seller, who in return promises to pay the buyer if an underlying bond or loan defaults.