• Share
  • Email
  • Embed
  • Like
  • Save
  • Private Content
US-Financial Crisis

US-Financial Crisis



Summarizes the current global financial turmoil that originated from USA.

Summarizes the current global financial turmoil that originated from USA.



Total Views
Views on SlideShare
Embed Views



1 Embed 1

http://www.docshut.com 1


Upload Details

Uploaded via as Microsoft PowerPoint

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
Post Comment
Edit your comment

    US-Financial Crisis US-Financial Crisis Presentation Transcript

    • Bhaskar Bhattacharya, Debashis patra PGP 2008-10, Indus World School of Business US Financial Crisis
    • The Origins
      • Growth of the Housing Asset Price Bubble
      • Further fuelled by the collapse of the Dotcom Bubble
      • A combination of low interest rates and cheap money
      • Widespread lending to subprime borrowers
      • Change from Fixed Rate Mortgages to Adjustable Rate Mortgages
      • Securitizing these into Mortgage Backed Securities
      • The creation of CDO’s and CDS’s by Investment Banks through financial engineering
      • Banks and Financial Institutions investing and trading in these high-risk high-return securities
    • The Subprime Saga
      • What is “Subprime” ?
      • Subprime lending and the creation of the subprime market
      • Rapid increase in subprime lending by Banks and Financial Institutions
      • Consumption led boom coupled with savings rate/disposable income falling from 5.0% to 2.0%
      • Speculation rather than economic fundamentals driving the Housing market
      • Collapse of the Stock Bubble fed the Housing Bubble even further
    • The Crisis unfolds
      • Housing Bubble bursts in mid 2007
      • By the end of 2007, Housing prices had fallen between 15% to 30% across various locations in the US
      • Home loan defaults rose rapidly by the weaker income groups across the US – The main beneficiaries of subprime lending
      • 320,000 foreclosures declared by the end of 2 nd quarter of 2007 as against 225,000 during 2001-06
      • Exposure of Banks, Pension Funds and Financial Institutions to CDO’s and SIV’s
    • Mayhem in the Markets
      • Increase in Subprime Defaults – Trigger for Financial Meltdown
      • Falling Real Estate prices+ Slowdown in Construction and Real Estate Sector = slowdown in the Economy
      • Mounting losses contributed to shrinkage of lending capacity
      • Banks and Financial Institutions exposure to bad debts grew by the day
      • Leveraged investors selling MBS and other such holdings in panic – Further drops in prices and more losses
      • Drying up of secondary market and availability of short term finance
    • Blood on Wall Street
      • I-banks heavy exposure to overrated CDS’s and MBS’s
      • Reduction in valuation of MBS’s- $ 14.5 trillion as of 2008
      • Weak Regulatory System
      • Precursor- Repeal of Glass-Steagal Act(1933) by Gramm-Bleach-Bliley Act(1999)
      • Notional value of CDS’s in 2007 = $45 trillion
      • Northern Rock, Bear Stearns, Merrill Lynch, Lehman Brothers, AIG, Washington Mutual – They all fall down
      • The remaing I-banks, Goldman Sachs and Morgan Stanley become Bank Holding companies after being bailed out
      • Citigroup tottering on the brink
    • Fiscal Stimulus Package 2009
      • Officially known as – American Recovery and Reinvestment Act of 2009
      • Signed into law on Feb 17 th by President Barack Obama in Denver, Colorado
      • Federal Tax Cuts,Expansion of Unemployment Benefits,and other social welfare provisions
      • Also includes increased domestic spending in Education, Healthcare and Infrastructure
      • Larger than the bailout package or Economic Stimulus Act 2008
      • Final Bill - $ 787 billion with 64% devoted for social sector
    • References
      • http://www.thehindubusinessline.com/2007/08/14/stories/2007081450040700.htm
      • The Subprime Crisis A Primer-MIHIR RAKSHIT ,ICRA Bulletin , Money and Finance ,June 2008
      • “ Deal Struck on $789 Billion Stimulus”. New York Times. February 11, 2009.
      • “ Why Bankers Got So Reckless” by Prof Amar Bhide, Business Week February 9,2009
      • “ Managing US Financial Crisis” – Dr Satyendra Nayak, Indian Banker, Dec 2008
      • “ The Run-Up in Home Prices: Is It Real or Is It Another Bubble? ” Dean Baker, CEPR, August 2002
      • Lehman Files for Bankruptcy; Merrill Is Sold" article by Andrew Ross Sorkin in The New York Times September 14, 2008
      • And many more…….