1 / 10

2008 Economic Crisis

2008 Economic Crisis . Crisis Overview. Collapse of Housing Market and Large Financial Institutions Downturn in Stock Market Government bailout of Banks Lead to Severe Global Economic Recession Shaped the current Economic Landscape . Housing Market. 1997-2006 Housing Prices Inc 147%

daria
Télécharger la présentation

2008 Economic 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. 2008 Economic Crisis

  2. Crisis Overview • Collapse of Housing Market and Large Financial Institutions • Downturn in Stock Market • Government bailout of Banks • Lead to Severe Global Economic Recession • Shaped the current Economic Landscape

  3. Housing Market • 1997-2006 Housing Prices Inc 147% • Belief that prices would continue to appreciate lead to Adj Rate Mortgages • Subprime Lending: Easy Credit conditions/Reg • Underwriting: High risk borrowers/ Risky loans • 40% subprime loans Automated Loan Approval • Predatory Lending pushes ARM’s and bait-switch to generate higher fees and commissions

  4. Risk-Taking Behavior • Housing Speculation: • 40% of Homes 2006 not primarily used • 28% for Invpurposes (Flipping)/ 12% Vacational • Leverage: • Borrowing/Investing Large Sums of money • Financial Institutions take on 113.8% debt in 2007 • Set up for failure if there was a decline in Economic Production

  5. Financial Market Innovation • Adjustable Rate Mortgages: • Low rates at first then adjust to market IR • Mortgage Backed Securities/COD’s: • Firms bundle securities (mortgages) together • Sell to investors hoping to profit from payments • Credit Default Swaps: • Insured Obligations of Financial Institutions • Insurer receives fees for promise to pay (AIG)

  6. Inaccurate Credit Ratings • Agencies under scrutiny for giving AAA investment grade Rating to Securities • Encouraged investment and trading in securities that were likely to default • Half of Moody’s Revenue in 2007 came from rating Subprime Securities • 3x the revenue for grading bonds

  7. Shift from Regulation to Deregulation • 1999: Gramm-Leah-Barney Act: • Reduces separation between commercial and investment banks • 2004: SEC relaxes Net Capital Rules • Increases level of debt exposure for banks • 2000: Commodity Futures Modernization Act • Self-Regulation of Derivatives Market • CDS included in Derivatives Market

  8. Timeline • March 16th 2008: • Investment Bank Bear Sterns Considered Illiquid • Purchased by JP Morgan Chase for $2 a share • Stock price traded at $172 a share in January 07!!! • September 7th: • Government Sponsored Fannie Mae and Freddie Mac placed into conservatorship • Sept 15th: Lehman Brothers files for Bankruptcy

  9. Timeline Continued • Sept 16th 2008: • AIG seized by government for $85 billion dollar purchase • “Too Big to Fail” • October 3rd 2008: • TARP: Troubled Asset Relief Program signed by President Bush • Increase Liquidity of Banking System and Firms

  10. December 16th 2008: • Ben Bernake cuts federal funds rate to 0-.25% • February 17th 2009: • Congress Approves $787 Billion economic stimulus

More Related