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Sub-Prime Mortgage Crisis

Sub-Prime Mortgage Crisis. S. Ghon Rhee K. J. Luke Distinguished Professor of Finance Shidler College of Business University of Hawai‘I. UH Asia-Pacific Financial Markets Research Center. Write-Offs by Financial Institutions. UH Asia-Pacific Financial Markets Research Center.

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Sub-Prime Mortgage Crisis

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  1. Sub-Prime Mortgage Crisis S. Ghon Rhee K. J. Luke Distinguished Professor of Finance Shidler College of Business University of Hawai‘I UH Asia-Pacific Financial Markets Research Center

  2. Write-Offs by Financial Institutions UH Asia-Pacific Financial Markets Research Center

  3. Capital Injections from ….. • Citigroup $14.5 billion GIC (Singapore) Kuwait Investment Authority Several Investment Groups • Merrill Lynch $6.6 billion Korea Investment Corp. Kuwait Investment Authority Mizuho Financial Group Inc. Other Investment Groups • UBS $11.9 billion GIC (Singapore) • Morgan Stanley$5 billion China Investment Corporation • Barclays $5 billion China Development Bank Temasek Holdings (Singapore) UH Asia-Pacific Financial Markets Research Center

  4. What is the Magnitude of Exposure? • Level 1 Assets: Value is determined by quoted prices in active market • Level 2 Assets: Value is determined by quoted prices in inactive market or model input prices that are observable • Level 3 Assets: No reference prices are available and strictly based on valuation models UH Asia-Pacific Financial Markets Research Center

  5. Size of Level 2 and 3 Assets • Level 3 Assets: $330 billion Level 3 Shareholder Equity AssetsBookMarket (1/18/08) Goldman Sachs $72 $35.8 $74.5 Lehman Brothers $22 21.4 28.3 Bear Stearns $20 11.8 9.8 JP Morgan Chase $60 123.0 133.3 • Level 2 Assets: $4.1 trillion UH Asia-Pacific Financial Markets Research Center

  6. Risk of Systemic Proportion is Brewing…. • Further write-offs spell disaster for the stock market • MBIA Inc. and Ambac Financial Group Inc. , leading bond insurers, will lose their AAA rating • Both guarantee payments on $2 trillion worth of bonds • Each lost more than $8 billion in their market value since the beginning of 2007 UH Asia-Pacific Financial Markets Research Center

  7. Foreign Exchange Reserves(As of December 2007) China US$1,530.0 billion Japan 973.4 Russia 474.0 India 276.3 Taiwan 270.3 Korea 262.2 Singapore 163.0 (Preliminary) Hong Kong 152.7 Germany 125.6 ------------------------------------------------------------------------------------- Malaysia 101.3 Thailand 85.0 Philippines 33.7 ------------------------------------------------------------------------------------- Total ( 9 East Asian Economies) $2,919.5 Asia-Pacific Financial Markets Research Center, University of Hawaii

  8. Sovereign Wealth Funds(As of December 2007) Government Investment Corp (Singapore) US$330 billion China Investment Corporation 200 Temasek Holdings (Singapore) 150 Brunei Investment Agency 30 Korea Investment Corporation 20 Khazanah Nasional (Malaysia) 18.3 National Stabilization Fund (Taiwan) 15 ------------------------------------------------------------------------------------- Abu Dhabi Investment Authority (UAE) 1,300 Saudi Arabia (Various) 300 Kuwait Investment Auority 250 Stabilization Fund of the Russian Federation 158 ---------------------------------------------------------------------------------- Total ( 6 East Asian Economies) $763.3 Asia-Pacific Financial Markets Research Center, University of Hawaii

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