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Billions of bubbles The deflation of the “once-in-a-century credit tsunami”…
<<  The global economy as a glorious interconnected bubble  >>
<<  The global economy as a bubble  >> <ul><li>Add air … rising growth rates, more lending and borrowing… more housing… mo...
<<  Adding air  -  Macro inflating  >> <ul><li>The central banks attempt to smooth economic cycles by injecting “liquidity...
<<  Fed banking balance ??  >> <ul><li>The fine art of central banking requires a “not too  hot ” … “not too  cold ” appro...
<<  The global web  >> <ul><li>The global financial system is a tightly interwoven web of banks, financial firms, pension ...
<<  The global web  >> <ul><li>Assets and currency fly around the earth at unimaginable speeds and quantities </li></ul><u...
<<  Cracks in the glass  >> <ul><li>July, 2007 >> the credit rating agencies come under a new law (SEC)  </li></ul><ul><li...
<<  Bearish August  >> <ul><li>August, 2007… disastrous Bear Stearns conference call… “worst credit markets in 20 years......
<<  MLEC  >> <ul><li>Fall 2007 credit markets getting wobbly </li></ul><ul><li>More downgrades from credit raters </li></u...
<<  March 2008  >> <ul><li>Bear Stearns fails…  </li></ul><ul><li>Counterparty confidence crashes </li></ul><ul><li>Federa...
<<  Life support  >> <ul><li>The Federal Reserve continues and increases liquidity injections from March, 2008 through Sep...
<<  Lehman September  >> <ul><li>Lehman tries to merge with the Korean Development Bank </li></ul><ul><li>Skepticism grows...
<<  Markets in cardiac arrest  >> <ul><li>Global financial players are shocked that Lehman Brothers has failed </li></ul><...
<<  Toxic AIG  >> <ul><li>AIG has written $ 400 billion of credit default swaps </li></ul><ul><li>No collateral needed whe...
<<  GS and MS  >> <ul><li>Short sellers drive down the equity price of Goldman Sachs and Morgan Stanley and their credit d...
<<  Frozen markets  >> <ul><li>Financial institutions are afraid to lend overnight or longer term </li></ul><ul><li>Everyo...
<<  Shocked  >> <ul><li>Greenspan reiterated his “shocked disbelief” that financial companies failed to execute sufficient...
<<  Housing deflation  >> <ul><li>Housing markets were fast rising 2002-2006 (remember all that Fed liquidity pumping in?)...
<<  TARP  >> <ul><li>Credit markets become totally frozen </li></ul><ul><li>No banks will lend to other banks </li></ul><u...
<<  Treasury injects capital  >> <ul><li>Treasury injects $ 125 billion in banks </li></ul><ul><li>Foreign central banks a...
<<  Fed liquidity injections  >>
<<  Where is the end?  >> <ul><li>2009? </li></ul><ul><li>2010? </li></ul><ul><li>2011? </li></ul>
<<  Hope is alive  >> <ul><li>Recovery could be faster than predicted due to resiliency from open source, distributed syst...
<ul><li>Thank you for looking at my slide set… </li></ul><ul><li>My hope is alive… </li></ul><ul><li>I’m Cate Long </li></...
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Billions Of Bubbles

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Billions of bubbles is about the credit crisis of 2007-2008...

Published in: Economy & Finance, Business
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  • Wow Cate...this is super...you did a great job putting all this info together...very interesting..
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  • Cate - good explanation of what has happened. Thanks.
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  • Hey, Cate! Good job!

    Maggie
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Transcript of "Billions Of Bubbles"

  1. 1. Billions of bubbles The deflation of the “once-in-a-century credit tsunami”…
  2. 2. << The global economy as a glorious interconnected bubble >>
  3. 3. << The global economy as a bubble >> <ul><li>Add air … rising growth rates, more lending and borrowing… more housing… more consumption… more investment…** </li></ul>** more pollution
  4. 4. << Adding air - Macro inflating >> <ul><li>The central banks attempt to smooth economic cycles by injecting “liquidity” into their banking systems… </li></ul><ul><li>“ Liquidity” injection happens through (1) the interbank “fed funds rate” and (2) repo lending to the “primary dealers” </li></ul>
  5. 5. << Fed banking balance ?? >> <ul><li>The fine art of central banking requires a “not too hot ” … “not too cold ” approach… </li></ul><ul><li>Assume the system will self regulate with firms looking out for their shareholders </li></ul><ul><li>This worked well for 25 years… low inflation, steady growth </li></ul><ul><li>Then endless Fed liquidity lead to credit addiction… billions of bubbles… everyone in debt… </li></ul>
  6. 6. << The global web >> <ul><li>The global financial system is a tightly interwoven web of banks, financial firms, pension and sovereign wealth funds, central banks and insurance companies… </li></ul>
  7. 7. << The global web >> <ul><li>Assets and currency fly around the earth at unimaginable speeds and quantities </li></ul><ul><li>It’s a glass palace… </li></ul><ul><li>Fragile… gorgeous… </li></ul>
  8. 8. << Cracks in the glass >> <ul><li>July, 2007 >> the credit rating agencies come under a new law (SEC) </li></ul><ul><li>Raters began downgrading large numbers of structured finance products </li></ul><ul><li>August, 2007 >> fixed income markets freeze up… mild panic… </li></ul>
  9. 9. << Bearish August >> <ul><li>August, 2007… disastrous Bear Stearns conference call… “worst credit markets in 20 years...” stock at $ 108 </li></ul><ul><li>Cramer has infamous meltdown… “Bernanke has to open the window!” </li></ul>
  10. 10. << MLEC >> <ul><li>Fall 2007 credit markets getting wobbly </li></ul><ul><li>More downgrades from credit raters </li></ul><ul><li>Investors began to worry about housing market </li></ul><ul><li>Secretary Paulson proposes “super-SIV” (structured investment vehicle) to assume toxic paper that is clogging the largest financial institutions (MLEC) </li></ul>
  11. 11. << March 2008 >> <ul><li>Bear Stearns fails… </li></ul><ul><li>Counterparty confidence crashes </li></ul><ul><li>Federal Reserve brokers deal and begins massive liquidity injections </li></ul>
  12. 12. << Life support >> <ul><li>The Federal Reserve continues and increases liquidity injections from March, 2008 through September… </li></ul><ul><li>Market volatility increases </li></ul><ul><li>Spreads widen … uncertainty grows </li></ul>
  13. 13. << Lehman September >> <ul><li>Lehman tries to merge with the Korean Development Bank </li></ul><ul><li>Skepticism grows… </li></ul><ul><li>No counterparty wants to deal with LB </li></ul><ul><li>Fed wont guarantee sale to Bank of America or Barclays </li></ul><ul><li>Lehman = bankruptcy </li></ul>
  14. 14. << Markets in cardiac arrest >> <ul><li>Global financial players are shocked that Lehman Brothers has failed </li></ul><ul><li>German Finance Minister says that Lehman costs Germany $ 300 billion </li></ul><ul><li>Lehman’s London hedge fund clients have assets frozen </li></ul><ul><li>Investors in Hong Kong suffer losses on LB “mini-bonds” </li></ul>
  15. 15. << Toxic AIG >> <ul><li>AIG has written $ 400 billion of credit default swaps </li></ul><ul><li>No collateral needed when AIG is rated AAA </li></ul><ul><li>AIG downgraded >> must post collateral </li></ul><ul><li>AIG gets $ 120 billion “loan” from Federal Reserve to pay counterparties collateral for CDS </li></ul>
  16. 16. << GS and MS >> <ul><li>Short sellers drive down the equity price of Goldman Sachs and Morgan Stanley and their credit default swaps signal higher risk of default </li></ul><ul><li>On a Sunday night the Federal Reserve announces that are becoming commercial banks >> safer and fully backstopped by Fed </li></ul>
  17. 17. << Frozen markets >> <ul><li>Financial institutions are afraid to lend overnight or longer term </li></ul><ul><li>Everyone afraid of counterparties credit risk </li></ul><ul><li>Toxicity … everyone polluted? </li></ul><ul><li>Credit rating agencies keep downgrading.. </li></ul>
  18. 18. << Shocked >> <ul><li>Greenspan reiterated his “shocked disbelief” that financial companies failed to execute sufficient “surveillance” on their trading counterparties to prevent surging losses. </li></ul><ul><li>The “breakdown” was clearest in the market where securities firms packaged home mortgages into debt sold on to other investors, he said. </li></ul>
  19. 19. << Housing deflation >> <ul><li>Housing markets were fast rising 2002-2006 (remember all that Fed liquidity pumping in?) </li></ul><ul><li>Now housing markets fast declining </li></ul><ul><li>Foreclosures skyrocketing </li></ul>
  20. 20. << TARP >> <ul><li>Credit markets become totally frozen </li></ul><ul><li>No banks will lend to other banks </li></ul><ul><li>The system is dying </li></ul><ul><li>Chairman Bernanke and Secretary Paulson go to Congress for help </li></ul><ul><li>$ 700 billion requested </li></ul>
  21. 21. << Treasury injects capital >> <ul><li>Treasury injects $ 125 billion in banks </li></ul><ul><li>Foreign central banks and governments inject massive amounts into those financial systems </li></ul><ul><li>Global deleveraging estimated at USD 10 trillion </li></ul>
  22. 22. << Fed liquidity injections >>
  23. 23. << Where is the end? >> <ul><li>2009? </li></ul><ul><li>2010? </li></ul><ul><li>2011? </li></ul>
  24. 24. << Hope is alive >> <ul><li>Recovery could be faster than predicted due to resiliency from open source, distributed systems </li></ul><ul><li>Opportunity for deep revitalization of America </li></ul><ul><li>Reduce, re-use and recycle </li></ul><ul><li>Have faith, family and friends </li></ul><ul><li>We will survive and rebuild </li></ul>
  25. 25. <ul><li>Thank you for looking at my slide set… </li></ul><ul><li>My hope is alive… </li></ul><ul><li>I’m Cate Long </li></ul><ul><li>http://shopyield.com </li></ul><ul><li>Come help build a retail fixed income market… </li></ul>
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