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An Introduction to Derivative Securities, Financial Markets, and Risk ManagementAdvanced Financial Risk Management, 2nd ed.

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On August 25, we examined the Federal Reserve’s extensions of credit under the Commercial Paper Funding Facility (“CPFF”).  We reached an astonishing conclusion: on average, 57% of the extensions of credit under the CPFF, which peaked at $348.5 billion of funds from Joe and Mary Six Pack, went to European firms.  In this blog, we rank the borrowings under the CPFF for all 82 parent/sponsors of the legal entities whose commercial paper was funded under the program. We wish to thank Brendan Cavanaugh for very helpful comments that have resulted in the revision of the number of days on which borrowing occurred for 22 of the 82 firms.

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Today’s forecast for U.S. Treasury yields is based on the August 25, 2011 constant maturity Treasury yields that were reported by the Board of Governors of the Federal Reserve System in its H15 Statistical Release at 4:15 pm August 26, 2011. The “forecast” is the implied future coupon bearing U.S. Treasury yields derived using the maximum smoothness forward rate smoothing approach developed by Adams and van Deventer (Journal of Fixed Income, 1994) and corrected in van Deventer and Imai, Financial Risk Analytics (1996). For an electronic delivery of this interest rate data in Kamakura Risk Manager table format, please subscribe via info@kamakuraco.com.

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On August 23, we explained how an enormous amount of the Federal Reserve’s loans in the form of “primary, secondary and other extensions of credit” went to AIG, other Too Big to Fail firms, and European institutions. Only 3% of average Fed loans went to “Other USA Banks,” those outside the 14 Too Big to Fail Firms.  In today’s blog, we examine Fed extensions of credit under the Commercial Paper Funding Facility (“CPFF”).  We reach another astonishing conclusion: on average, 57% of the extensions of credit under the CPFF, which peaked at $348.5 billion of funds from Joe and Mary Six Pack, went to European firms.

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In our 20 part series on “Case Studies in Liquidity Risk,” we focused on the story of 20 firms who experienced a larger and serious funding crisis in the period from February 8, 2008 to March 16, 2009. While the firm by firm analysis is critical from a Basel III and enterprise risk management perspective, there is a bigger story in the analysis of the Federal Reserve’s extension of “primary, secondary and other sources of credit” during this period.  Our conclusion is very simple: Joe and Mary Six Pack saved Wall Street, London, Frankfurt, and big corporates in the USA and Europe.  More than $700 billion in Fed extensions of credit ultimately come from Joe & Mary Six Pack’s tax dollars. Joe and Mary will be surprised to learn how little of their support in the credit crisis went to the small banks on Main Street.  For the details, read on.

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10 Year Forecast of U.S. Treasury Yields And U.S. Dollar Interest Rate Swap Spreads
Today’s forecast for U.S. Treasury yields is based on the August 18, 2011 constant maturity Treasury yields that were reported by the Board of Governors of the Federal Reserve System in its H15 Statistical Release at 4:15 pm August 19, 2011. The “forecast” is the implied future coupon bearing U.S. Treasury yields derived using the maximum smoothness forward rate smoothing approach developed by Adams and van Deventer (Journal of Fixed Income, 1994) and corrected in van Deventer and Imai, Financial Risk Analytics (1996). For an electronic delivery of this interest rate data in Kamakura Risk Manager table format,

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