Regulatory AAA requirements forced funds to buy the very derivatives that collapsed.
Evidence
With a decade of house-price increases telling everyone that house prices only go up, and with these new mortgage derivatives seemingly eliminating a correlation problem that was deemed small to begin with and was now insurable with a CDS, you could almost begin to believe that you had what bankers call a “free option”: an asset with zero downside and a potentially unlimited upside, and one that is rated AAA by the ratings agencies. The fact that many investment funds are legally required to hold a specific proportion of their assets as AAA securities pumped demand still further. — Mark Blyth, Austerity, 93
Categorization
- XREF: Regulation-mandated AAA demand is the systemic link that ties the crisis to state rules, a thread the book’s austerity thesis exploits. — connects to: Value-at-risk regulation indirectly pressures banks into forced selling — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1050; Sudden margin hikes can trigger forced sales that amplify the very volatility causing them — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 941; Value-at-risk limits force position liquidation once breached — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1048 (+1 more)
Broader Connections
- Value-at-risk limits force position liquidation once breached
#expands(0.88) — Donald MacKenzie, An Engine, Not a Camera, 1048 - Value-at-risk regulation indirectly pressures banks into forced selling
#expands(0.85) — Donald MacKenzie, An Engine, Not a Camera, 1050 - Sudden margin hikes can trigger forced sales that amplify the very volatility causing them
#expands(0.80) — Donald MacKenzie, An Engine, Not a Camera, 941 - Exploding mortgage-security demand forced lenders to invent worthless borrowers.
#exemplifies(0.75) — Mark Blyth, Austerity, 94