The credit crunch: Part I

Financial disasters such as credit crunch involved in case of financial innovations are regulated and controlled by a proper understanding of the financial crisis. Financial innovation provides high level of leverages, the securitization of consumer debt, and the proliferation of derivatives. The financial disasters are controlled by human motivation and behavior, effective regulation, and appropriate monetary policy. The financial problems are also tackled by devising business models focusing on generating profits from origination fees and from selling loans at a profit to third parties. The cash is divided into various different streams having stable cash flows and some having uncertain cash flows. The ratings of cash tranches are enhanced by the purchase of some cheap insurance and the first-order cancellation of risk works if all parties honor their obligations.