1 / 10

The Financial Crisis

This analysis by Marlene Kim, Associate Professor of Economics at UMass Boston, delves into the pivotal events surrounding the 2008 financial crisis. It examines Collateralized Debt Obligations (CDOs) and their role in aggregating various asset-backed securities, including subprime mortgages. The paper discusses AIG's massive exposure through credit default swaps and highlights the troubling trends in the housing market leading up to the crisis. With key insights into the failures of credit rating agencies and risky lending practices, this work sheds light on the systemic issues that triggered the economic downturn.

carrington
Télécharger la présentation

The Financial Crisis

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The Financial Crisis Marlene Kim Assoc. Prof. Department of Economics University of MA Boston 100 Morrissey Blvd. Boston, MA 02125 617/287-6954 Marlene.Kim@umb.edu

  2. Collateralized Debt Obligations (CDOs) • Put different traunches of MBS together • Add other “asset backed securities”—auto loans, credit card loans, student loans, commercial real estate • Sell off the packages

  3. AIG • 9/08: AIG sold half a trillion CDS • “It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of these [CDS] transactions” • --AIG executive. August 2007

  4. Moody’s profits • Profits huge, larger than Microsoft, Exxon • Can receive $200,000 in fees for evaluating MBSs • Growth came from evaluating mortgage related securities • Most of revenue from structured finance

  5. Subprime: mortgages to borrowers with poor credit histories Alt-A: no documentation of income

  6. How could they afford homes? • Option ARM: low teaser rates that were re-set later. • Interest only loans. No payment of principal • Less than 20% down payment. • Sometimes no down payment

  7. What happened? • Subprime mortgages defaulted. • April 2007, housing prices fell nationally for first time • People couldn’t re-sell their houses for a profit. • Credit crunch

  8. AIG • September 2008 • Biggest insurance company in the US • $302 trillion in credit insurance out • $183 billion

More Related