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“ What began as a tremor in the sub-prime mortgage market that affected a relative few,  has sadly gained momentum, creati...
<ul><li>Contents </li></ul><ul><li>Housing Markets in USA </li></ul><ul><li>Leveraged Security Markets </li></ul><ul><li>P...
<ul><ul><li>Housing Markets in USA </li></ul></ul><ul><ul><li>Contributed about 14% to nations total production </li></ul>...
<ul><ul><li>Leveraged Security Markets </li></ul></ul><ul><ul><li>Innovatively  designed  </li></ul></ul><ul><ul><li>mecha...
THE MODEL OF MORTGAGE LENDING Bank grants mortgage   Bank grants mortgage  Home buyer pays the bank  Bank sells mortgage b...
THE MODEL OF MORTGAGE LENDING Homebuyer defaults  Homebuyer defaults Bank repossess the loans  Bond payments cease   Bond ...
<ul><ul><li>  Parties in the Crisis </li></ul></ul><ul><ul><li>Borrowers </li></ul></ul><ul><ul><li>Financial Institutions...
Increase In Unemployment
<ul><li>Inflation </li></ul><ul><li>Inflation stands at 4% today </li></ul><ul><li>Fed rate cut leading to declining dolla...
<ul><li>USD Vs Euro </li></ul><ul><li>25% decrease over past two years </li></ul><ul><li>USD Vs JPY </li></ul><ul><li>16% ...
<ul><li>Widening Fiscal Deficit </li></ul><ul><li>Fiscal Deficit worth  </li></ul><ul><li>$248.2 billion in 2007 </li></ul...
<ul><li>US Growth </li></ul><ul><li>US growth forecasted at 1.5% for the year 2009 by IMF </li></ul><ul><li>Weakening  hou...
 
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US Subprime Crisis

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Transcript of "US Subprime Crisis"

  1. 2. “ What began as a tremor in the sub-prime mortgage market that affected a relative few, has sadly gained momentum, creating a broader credit crisis that continues to threaten the middle class and overall economic growth.” - Senator Jack Reed (D-RI)
  2. 3. <ul><li>Contents </li></ul><ul><li>Housing Markets in USA </li></ul><ul><li>Leveraged Security Markets </li></ul><ul><li>Parties in the Crisis </li></ul><ul><li>Impact of the Crisis on USA </li></ul>
  3. 4. <ul><ul><li>Housing Markets in USA </li></ul></ul><ul><ul><li>Contributed about 14% to nations total production </li></ul></ul><ul><ul><li>Home equity constituted largest share of households net worth </li></ul></ul><ul><ul><li>Flow of more than $1 trillion from sale of existing and new homes </li></ul></ul><ul><ul><li>1.5 million new housing units started </li></ul></ul><ul><ul><li>each year </li></ul></ul><ul><ul><li>Provided employment to 1.49 million people </li></ul></ul><ul><ul><li>Income generation in ancillary industries </li></ul></ul>
  4. 5. <ul><ul><li>Leveraged Security Markets </li></ul></ul><ul><ul><li>Innovatively designed </li></ul></ul><ul><ul><li>mechanism called </li></ul></ul><ul><ul><li>SECURITIZATION </li></ul></ul>
  5. 6. THE MODEL OF MORTGAGE LENDING Bank grants mortgage Bank grants mortgage Home buyer pays the bank Bank sells mortgage bonds Home buyer pays the bank Bank pays bondholders 2 4 1 3 1 2 1 1 Keys: Safeguard: Flow Of Money Home Checks Independent Checks 2 2 3 4 Mortgage Broker Home Appraisers Rating Agencies Home Buyer Home Buyer Mortgage Bond Market Bank Bank Home Valuation Income Check Repayments Mortgage Loan Repayments Mortgage Bond Bond Payments Mortgage loans
  6. 7. THE MODEL OF MORTGAGE LENDING Homebuyer defaults Homebuyer defaults Bank repossess the loans Bond payments cease Bond markets dry up Bondholders repossess 3 2 4 1 2 1 1 1 Keys: Safeguard: Flow Of Money Flawed × Flow stops Home Checks Independentchecks 2 2 3 4 Mortgage Broker Home Appraisers Rating Agencies Home Buyer Home Buyer Mortgage Bond Market Bank Bank Home Valuation Income Check × Repayments stops × Mortgages Dry up × Mortgage Bond Defaults × Repayments stops × Bond Payments Stop × Mortgage Loan
  7. 8. <ul><ul><li> Parties in the Crisis </li></ul></ul><ul><ul><li>Borrowers </li></ul></ul><ul><ul><li>Financial Institutions </li></ul></ul><ul><ul><li>Securitization </li></ul></ul><ul><ul><li>Mortgage Brokers & Underwriters </li></ul></ul><ul><ul><li>Credit Rating Agencies </li></ul></ul><ul><ul><li>Central Banks </li></ul></ul>
  8. 9. Increase In Unemployment
  9. 10. <ul><li>Inflation </li></ul><ul><li>Inflation stands at 4% today </li></ul><ul><li>Fed rate cut leading to declining dollar thereby increasing inflation </li></ul><ul><li> </li></ul>
  10. 11. <ul><li>USD Vs Euro </li></ul><ul><li>25% decrease over past two years </li></ul><ul><li>USD Vs JPY </li></ul><ul><li>16% decrease over past two years </li></ul>
  11. 12. <ul><li>Widening Fiscal Deficit </li></ul><ul><li>Fiscal Deficit worth </li></ul><ul><li>$248.2 billion in 2007 </li></ul><ul><li>against $244.2billion </li></ul><ul><li>in 2006 </li></ul><ul><li>Projected to be $239.4 </li></ul><ul><li>Billon in 2008 </li></ul>
  12. 13. <ul><li>US Growth </li></ul><ul><li>US growth forecasted at 1.5% for the year 2009 by IMF </li></ul><ul><li>Weakening housing, manufacturing, employment </li></ul><ul><li>and consumer spending to dampen the growth </li></ul>
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