Billions Of Bubbles
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Billions Of Bubbles



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

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



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  • Wow Cate...this is 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!

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    Billions Of Bubbles Billions Of Bubbles Presentation Transcript

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