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FINANCIAL CRISIS

FINANCIAL CRISIS. MGM4136. HOME OWNERS/ S UB PRIME BORROWERS. LOW INTERESTS ATTRACK BUYERS/REFINANCER BUT IN 2006 HOUSE PRICES BEGIN TO DECLINE. Fannie Mae and Freddie . L OAN. F A I L.

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FINANCIAL CRISIS

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  1. FINANCIAL CRISIS MGM4136

  2. HOME OWNERS/SUB PRIME BORROWERS LOW INTERESTS ATTRACK BUYERS/REFINANCER BUT IN 2006 HOUSE PRICES BEGIN TO DECLINE Fannie Mae and Freddie L OAN F A I L BANK PROVIDE LOAN TO HOME LOAN TO OWNERS BUT SELL THE MORTGAGE TO ANOTHER COMPANY ( EG. LEHMAN BROTHERS in October 2004, the Securities Exchange Commission (SEC) relaxed the net capital requirement for five investment banks - Goldman Sachs (NYSE:GS), Merrill Lynch (NYSE:MER), Lehman Brothers, Bear Stearns and Morgan Stanley (NYSE:MS) - which freed them to leverage up to 30-times or even 40-times their initial investments. US GOVT LEHMAN BROTHERS create Mortgage-backed securities (MBS): a pool of mortgage interests will then be sold at the stock market. By 2007, LB overexposed to housing market. Overexposed to housing Lack of own cash Pulling of credit facilIties BY bank LEHMAN BROTHERS BANKRUPT American Insurance Group MERILL LYNCH STOCK MARKET PEAK AND CRASH Bear Stearns was acquired by JP Morgan Chase

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