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The Financial Crisis

By: Luke Johnson and Austin McKeon

2000-2006

- Glass-Steagall Act is Repealed: It separated banking from investment banking. Contributed to melt down of housing market.

- Changes in the securitization food chain: A huge chain of where loan payments would go first from home buyers, then to lenders, then to investment banks, and lastly to investors.

- Sales of CDOs by major investment banks: CDO stands for collateralized debt obligations

- Hank Paulson becomes Secretary of Treasury: In 2008 he became Secretary of Treasury and Goldman Sachs stock plummeted because of that

2000-2006

2007

- Ratings Agencies are paid off to give high ratings to risky investments (2007-2008): Rating agencies were paid 100’s of billions to to suggest risky investments that went to zero during the financial crisis

- Leverage ratios are lifted on banks - Leverage ratios indicate the level of debt a bank has against its accounts. The original was 3-1 but got up to being more than 15-1

- Housing Prices Plummet - The value of their house went down because people had to default and it led to mass foreclosures.

- Subprime mortgages & predatory lending explode - A subprime mortgage was a mortgage given to people with poor credit scores which, Ex: Fixed rate mortgages, interest only mortgages, adjustable rate mortgages

2007

2008

- AIG begins issuing more and more Credit default swaps. A credit default swap means a buyer can put the risk of an investment onto an insurance company in exchange for a fee

- Multiple public retirement funds lost millions (Sep. 29, 2008): The stock market fell and Roth IRA’s and 401ks lost money

- Federal Government starts TARP Program - TARP program was created to stabilize the U.S Financial system

- Government issues roughly 700 billion dollars in bailout money

- Government takes over two major lenders - Freddie Mac and Fannie Mae

-

2008

2008(continued)

(continued list)

- Government bailouts begin with 30 billion dollar cash infusion when Bank of America purchases another bank (Merril Lynch)

- Lehman Brothers goes bankrupt - Our government failed to recognize all of the banking issues and that they should’ve bailed them out

- Over 6 million foreclosures on homes occur

- Executives use bailout money to pay their bonuses: The bailout money come from TARP program

2009

- SEC budget and manpower is severely reduced: The SEC failed to do their job during the crisis which was to police the financial sector.

- Financial Lobbying Power continues to grow: lobbyists for each member of congress

- Banks pay back all of the money, but are not charged interest.

- The CEO's of all major investment banks, and the staff of the Federal Reserve are called in to the White House

2009

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