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Research Details
Betting on Failure: Profiting from Defaults on Subprime Mortgages
Abstract
In October 2008, in the midst of a financial crisis, Anthony Keating, investment manager at the Boston private bank Billingsley, Blaylock, and Montgomery, was searching for an investment strategy to recommend to his high-net-worth clients. Traditional investments in the equity markets were being decimated, and Keating's clients would be looking to him for ideas. Inspired by the success of Paulson and Co., Keating began to explore the possibility of entering a trade that would profit as homeowners defaulted on their mortgages. The more Keating learned about the trade, the more he realized that he needed to know about mortgage-backed securities and credit default swaps. The case provides instructors with a chance to introduce these financial instruments, while at the same time providing lessons applicable to students interested in value investing or real estate finance.
Type
Case
Author(s)
Date Published
01/05/2015 (Revised: 05/26/2016 )
Discipline
Finance
Key Concepts
Cash flow analysis, Financial analysis, Financial instruments, Financial strategy, Real estate, Securitization, Mortgage-backed securities, Credit default swaps, Subprime, MBS, CDS
Citations
Furfine, Craig. Betting on Failure: Profiting from Defaults on Subprime Mortgages. Case 5-312-504 (KEL879).
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