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11S.01.Informal_introduction-student - FIN 600 Lecture 1...

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FIN 600 – Lecture 1 Financial Crisis and An Informal Introduction to Finance Dr. Zhipeng (Alan) Yan
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Financial Crisis: 2007-09 Crisis: “When written in Chinese, the word "crisis" is composed of two characters. One represents danger and the other represents opportunity This underscores the tradeoff that investors and business managers must make between reward and risk .
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Danger – Big Casualties Bear Sterns: 85 years old. - Sold - agreed to be sold to JPM on March 16,2008 - “Poor, smart and with a deep desire to be rich” Lehman Brothers: 158 years old. - Died - U.S. investment bank and capital-markets businesses were bought by UK’s Barclays - “Where Vision Gets Built” Merrill Lynch: 94 years old. - Sold - sold to Bank of America. - the world's largest stockbroker -16,000 brokers - "We See Your Financial Life in Total" AIG: 89 years old – Seized by Gov - the largest underwriters of commercial and industrial insurance - “We know money” Buying a house is not the same as buying a house on fire.
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Financial Institutions Commercial banks : raise money from depositors and then make loans to businesses and individuals. Investment banks : do not take deposits, do not make loans. They advise and assist companies in raising financing. Sadly, traditional 5 largest I-banks disappeared in this crisis. Insurance Companies : Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium , and can be thought of as a guaranteed and known small loss to prevent a large, possibly devastating loss. An insurer is a company selling the insurance; an insured or policyholder is the person or entity buying the insurance. They are more important than banks for the long-term financing of business. WHY?
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Opportunities – 2008 (Top Hedge Fund Managers) 1 James Simons, Renaissance Technologies Corp. , $2.5 billion 2 John Paulson, Paulson & Co. , $2 billion (made 3.7 billion in 2007) 3 John Arnold, Centaurus Energy, $1.5 billion 4 George Soros, Soros Fund Management, $1.1 billion 5 Raymond Dalio, Bridgewater Associates , $780 million 6 Bruce Kovner, Caxton Associates, $640 million 7 David Shaw, D.E. Shaw & Co. , $275 million 8 Stanley Druckenmiller, Duquesne Capital Management, $260 million 9 David Harding, Winton Capital Management , $250 million 9 Alan Howard Brevan. Howard Asset Management, $250 million 9 John Taylor Jr. , FX Concepts, $250 million
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Mutual Fund (MF) vs. Hedge Fund (HF) MF: pooled investment and invest in publicly traded securities Small guys Registered with SEC Seek relative returns Long-only (buy/sell decisions) No or low leverage No or low appetite for high- risky assets Asset under management: 11.6 trillion (Aug,08) HF: pooled investment and invest mostly in publicly traded securities Big guys: accredited investors, rich individuals and institutions not registered with SEC Seek absolute return Long-short, derivatives.
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