Bond Videos

Professor Shiller discusses the effects of the financial crisis and the failed policies of investment banks.  He walks through the wreckless actions taken by investment banks, their effects on the secondary market, and the intervention by the federal reserve to soften the landing of the crisis. 

Shiller suggests that the financial system is unstable and needs more regulation and oversight, especially for consumers.   He believes that the role of the federal reserve will be altered in the future.  Furthermore, Professor Shiller discusses the basics of investment banking and talks about how they underwrite securities which are then traded in the secondary market.  These securities came under fire as they were irresponsibly created and were composed of toxic assets which cratered in value as the housing market started to take a nose dive.

The speaker provides a history on inflation.  He suggests that all wars are inflationary in nature.  If the government engages in deficit spending, it creates conditions for inflation; however, when the deficit spending is made on internal project such as road and bridges, this will eventually work itself back into the economy.  Bombs will never bring any economic benefit back to the currency. 

He also suggests that over the last 40 years, there has been an exponential increase in inflation due to the massive devaluation of the currency.  Abandoning the gold standard and moving to a fiat system was the key driver to inflation.

The speaker discusses the valuation of an interest rate swap.  At the time the counterparties agree to swap, the value of the swap is nearly 0; each counterparty expects the benefit to change over time as rates change.  Each leg of the swap can be treated as a bond, one fixed and one floating.  Therefore, the value of the interest rate swap is simply the difference in value between the two bonds.