1. Global financial crisis 2007-2008
United States Housing Crises
PRESENTED BY:
MUHAMMAD SHAHBAZ KHAN
MBA IN FINANCE 4 YEARS EQ TO MS AND M.PHIL
MANAGEMENT SCIENCES (IUB)
2. AGENDA
1
◦ Kay Terms
2
◦ Introduction
3
◦ Causes of the crisis
4
◦ Effects of the crisis
5
◦ Impact of crisis in Pakistan
3. Kay Terms
SUBPRIME LANDING: Means making loan to people who may have difficulty maintain the
repayment schedule. Borrows who do not qualify for market interest rates.
CREDIT DEFAULTS SWAPS (SDS): Credit default swaps (CSS) are a type of insurance against
default risk by a particular company.
COLLATERALIZED DEBTS OBLIGATION (CDO): A collateralized debts obligation (CDO) is a
structured financial product that pools together cash flows generating assets and repackage this
assets pools into discrete tranches that can be sold to investors.
QUALTITATIVE EASING: Its an unconventional monetary policy in which a central bank
government securities or others securities from the market in order to lower rates of interest
and increased the money supply.
BAILOUT: A bailout is a situation in which a business, an individual or government offers money
to a failing business to a prevent the consequence that arise from the business’s downfall.
Bailouts can take the form of the loans, bond, stock and cash.
4. Introduction
The financial crisis of 2007–2008, also known as the global financial crisis and the 2008
financial crisis, is considered by many economists to have been the worst financial crisis since
the Great Depression of the 1930s.
It began in 2007 with a crisis in the subprime mortgage market in the United States, and
developed into a full-blown international banking crisis with the collapse of the investment
bank Lehman Brothers on September 15, 2008.
5. Introduction
Other Wall Street standard-bearers also started reeling from bad investments, . Before the end
of August the crisis had spread to some French and German banks, and prompted the Federal
Reserve and the European Central Bank to pump liquidity into the banking system and to
reconsider their interest rate policies.
6. Causes of the crisis
Loose Monetary Policy and Low Interest rates: FED reduces interest rates from 6.5% in 2001
and 1% in 2003. Foreigners increased holdings of US Treasury Bonds, increasing liquidity.
Proceeds mainly went into housing market.
Financial Deregulation: In 1999, the president Clinton Abolisher Glass-Steagall Act of 1933,
Separating commercial banking from investment banking.
Sub Prime Mortgages: CDO and CDS contributed in this. Subprime family could not able to pay
their loans because of various reasons and ultimately us housing bubble burst.
Globalization: This was the most drastic one as many countries invested in US and with the fall
of the us economy risk were vary high due to global connectivity and financial system.
7. Effects of the crisis
It was also the longest since 1929 depression, Lasting 18 months of December 2007 to June
2009. The subprime mortgage crisis was the trigger. The created global banking bank credit
crisis.
Bank are all facing a problem of having a less credit for lending money , Since so many people
cannot pay back the mortgage loan and since others financial institution have failed. Others
bank now will not lend to them.
Unemployment reached 10% in USA and so many countries went bankrupt and world trade
falls by 40% in 2008.
Crisis has caused panic in financial markets and encourage investors to take their money out of
risky mortgage bonds and equities also Financial institutions like leman’s Brothers going
bankrupt and Fannie Mae and Freddie Mac being taken under government control.
The Global economy faces an Enormous slowdown.
8. Facts of the crisis
Alan Greenspan was the Chairman of the Federal Reserve of the United
States from 1987 to 2006.He was appointed by the president Ronald Reagan
August 1987 and was reappointed by president Bill Clinton in 1996, He was
Perhaps, the person most singly responsible for the housing bubble in the US.
The recession officially ended in the second quarter of 2009, but the nation’s
Economy continued to be described as in an “Economy malaise” during the second quarter of
2011.
Bailout of US financial system helped economy to revive.
Credit rating agencies were also the main accused all the derivatives such as CDS,MBS etc, plus
all the investment bank (Including BEAR, STREANS and LEMAN’S) had been given AAA rating
“SAFE INVESTMENT”.
9. Impact of crisis in Pakistan
Financial sector reforms in the pre-crisis period had strengthened the Financial soundness
Indicators of the banking system.
Private sector ownership and management brought about efficiency but a strong regulatory
regime did reform its watchdog function in continuing exercise risk taking.
Plain Vanilla Derivatives were introduced gradually on a case-by-case basis.
Non-banking system was a minor player in the game and could not cause any ripples.
10. Impact of crisis in Pakistan
Banking sector had little lending exposure in troubled countries
Trading book almost non-existent
Exposure to securitized products was limited
However, an indirect (and in some cases the direct) impact is felt
◦ There is a lag effect
◦ Liquidity dried up (or cost of funding increased)
◦ Concentration in portfolios
◦ Name lending portfolio quality is uncertain
◦ FDI flows are not certain - Linked to economic growth
