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2008 financial crisis

2008 financial crisis

zhimei wu

on 14 January 2013

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Transcript of 2008 financial crisis

2008 Financial Crisis Terms that we are going talk about:


-Sub-prime mortgages

-Sub-prime loan

-Collateralized debt obligation

-Credit markets

-Credit default swaps Mortgages: A loan to finance the purchase of real estate, usually with specified payment periods and interest rates. The borrower (mortgagor) gives the lender (mortgagee) a lien on the property as collateral for the loan. -Subprime Mortgages: A class of mortgage used by borrowers with low credit ratings. Borrowers who use subprime loans generally do not qualify for loans with lower rates because they have damaged credit or no credit history, and are thus considered risky by lending agencies. Because the default risk for poor credit borrowers is greater than of other borrowers, lenders charge a higher interest rate on subprime loans.
-The subprime mortgages typically came with a low interest for the first few years, and then a drastic increase. Definitions Sub-prime Loan: A type of loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans. Quite often, subprime borrowers are often turned away from traditional lenders because of their low credit ratings or other factors that suggest that they have a reasonable chance of defaulting on the debt repayment Collateralized debt obligation (CDO): CDO. An investment-grade security backed by a pool of various other securities. CDOs can be made up of any type of debt, in the form of bonds or loans, and usually do not deal with mortgages. CDOs, like CBOs and CMOs, are divided into slices, each slice is made up of debt which has a unique amount of risk associated with it. CDOs are often sold to investors who want exposure to the income generated by the debt but do not want to purchase the debt itself. Credit Market: A marketplace for the exchange of debt securities
and short-term commercial paper .
Companies and the government are able to raise funds by allowing investors
to purchase these debt securities.
Activity in credit markets is often used to gauge investor sentiment.
If more bonds from the government are being purchased,
this is typically a good indicator that investors are worried about the stock market. Credit default swaps: A specific kind of counterparty agreement which allows the transfer of third party credit risk from one party to the other. One party in the swap is a lender and faces credit risk from a third party, and the counterparty in the credit default swap agrees to insure this risk in exchange of regular periodic payments (essentially an insurance premium). If the third party defaults, the party providing insurance will have to purchase from the insured party the defaulted asset. In turn, the insurer pays the insured the remaining interest on the debt, as well as the principal. -The major cause of the 2008 Financial Crisis is the Subprime Mortgage and Subprime Landing What caused the 2008 financial Crisis?
-Economists warned of the dangers, but one wants to interrupt the party.
-Consumers are happy to marking money. At the end “When the US sneezes, the world catches a cold”
-It will happen again. Who is affected? Everyone Specifically: * House owner
* Investor
* Lender
* Brokers
* Wall Street
* Bankers Other causes: -Fuels go up in prices.

-Inflations go around the world. Effects: -The FNM and FRE were both taken over by the government. Lehman Brothers declared bankruptcy after failing to find a buyer.
-Many people loss their job, retirement funds, and go bankrupt
-Companies and Banks go bankrupt, retrenchment, or move to other country Time lines of the crisis: The US real estate capital gains tax cut, which eliminated the capital gains tax on primary home.

The real estate, began with the burst of the US housing bubble

The housing prices peaked and began to fall

The great depression, 25 banks failed in the U.S. 1997: 2004:
2006-07: 2008: Total lost in the crisis:
>The global financial crisis makes the US lost 15 trillion in assets. Show video: What was the role of the government? -$700 billion bailout package, which wasn't approved by Congress until two weekslater. However, the taxpayer was neverreally out $700 billion. Only $350 billion was used in 2008to buy bank and automotive company stocks, when the prices were depressed.
-Ask for help from other... such like china also bought $400 billion RMB of U.S. Treasury bills to simulate the whole economic.
-Obama: Buy Americans Do you agree with the bailout that that was given to the investment bank? Yes. I do agree with bailout, even though the U.S. owes $15 trillion from the great depressions, but still the legislation is better than noting (to help forestall panic). If without the bailout, the U.S economic might getting even worse. For example, companies go collapse or bankrupts and thousands of people lost their job, and lost the money that they saving for their entire life, and end up living in the street. There for the government must bailout and to keep the economic stay claims. Even can’t last long forever. Government does not want the economic falls like companies FMN, FRE, or Lehman Brother. What were the effects of the crisis around the world? (Canada, USA, Spain ,Greece, Dubai etc.) Financial crisis of 2007–2008(each country impact) China: The great depression had leads to the U.S. decreasing of goods from china, whereas unemployment rose in china as well. UK:
o In the UK there was a large fall in retail sales, especially in the furnishing and DIY sectors.

o Unemployment rose, especially in the 18-24 age groups.

o In the 4th quarter of 2008 UK Gross Domestic Product (GDP)* fell by 1.5% and the country officially entered a period of recession. The recession continued through 2009 USA:
o In the US, a total of 25 banks failed in 2008. Canada:

o Canada financial system has been less affected than other industrialized counties

o Canadian energy and natural resources bring about lower demand and weaker prices for commodities Japan:

o The Japanese stock market and global day as falling for 26 years in lowest, the government use 10 million yen to save the city plan. Game Question 1. What are the 2 major caucuses of the 2008 Crisis? A.Subprime mortgage and Subprime lending
B.Mortgage loan and debt burden
C.diffcult credit conditions and growth of the housing bubble 2. How much money did the U.S. government really bailout? A.150 Billion
B.350 Billion
C.550 Billion 3. When did the U.S. government cut the gains on Capital? A.1995 B.1996 C.1997 4. How many banks in U.S. go bankrupts in 2008? A.10 banks B.15 banks C.25 banks 5. How many weeks later did the U.S government bailout? A.2 weeks later
B.3 weeks later
C.4 weeks later 6. Who bought the Treasury Bills from the U.S? How much? A.UK $38billion POUND
B.China $400billion RMB
C.Canada $58billion CAN 7. What amounts did the U.S. in the great depression? A.10 Trillion B.15 Trillion C.25 Trillion 8. Name 3 groups of people that directly affected from the Crisis? 9. What is the full name of CDO in this financial crisis? A.Collateralized debt obligation
B.Chief Development Officer
C.Collaboration Data Objects 10. Before the Crisis, the Federal Reserve announced that to lower the interest rate down to ____%? A.3 B.2 C.1 11. Name 2 other causes of the 2008 Crisis? A.Inflations and fuels
B.loan and liquidity trap
C. bank failures and deflationary 12. Obama wants to stimulate the U.S economic and told people to buy? A.Americans B.Foreign goods 13. “When the US sneezes, the world catches a ? A.gold B.Cold C.Low 14. A loan to finance the purchase of real estate, usually with specified payment periods and interest rates. The borrower (mortgagor) gives the lender (mortgagee) a lien on the property as collateral for the loan. Is the definition for Subprime Mortgage? A.True B. False 15. How year of the 2008 Financial Crisis began to fall? A.2005-6 B.2006-7 C.2007-8 16. Economists warned of the dangers, but no one listening to it. Why? Suffering from financial crisis 17.How many slices are in a box of COD and what they called?
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