Financial Crisis-2008

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Financial Crisis explained in brief

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Financial Crisis-2008

  1. Created By: Parshwadeep Lahane
  2. PARTNERS IN CRIME Customers FED Mortgage Brokers Investment Banks Investors Credit Rating Agencies Insurers
  3. Modus Operandi <ul><li>Bank would come out with schemes to give loans to just anyone with the help of mortgage brokers </li></ul>Principal + interest payable over long term Loan Loan + Premium Documents Documents BANK(Lender) Mortgage Broker Subprime Customer
  4. MBS for loan <ul><li>Bank would package the loan into a security and pass on to Investment banks </li></ul>Principal + interest payable over long term Loan Loan + Premium Documents Documents BANK(Lender) Mortgage Broker Subprime Customer SIV Investment Bank Loan + Premium Documents converted to Securities(MBS/ABS ) Off balance sheet entity
  5. CDO <ul><li>The investment banks will package these with other securities and slice them into different categories of CDO </li></ul>CDO Securities(MBS)
  6. Certification <ul><li>Credit Rating agencies(CRA) would certify these securities </li></ul>Principal + interest payable over long term Loan Loan + Premium Documents Documents BANK(Lender) Mortgage Broker Subprime Customer SIV Investment Bank Loan + Premium Documents converted to Securities(MBS/ABS ) Off balance sheet entity CDO CRA Rating Premium
  7. Investors <ul><li>Investment bank Structured Investment Vehicle(SIV) will sell CDOs to the Investors across the globe </li></ul>Principal + interest payable over long term Loan Loan + Premium Documents Documents BANK(Lender) Mortgage Broker Subprime Customer SIV Investment Bank Loan + Premium Documents converted to Securities(MBS/ABS ) Off balance sheet entity CRA Rating Premium CDO Investors Loan + Premium
  8. Insured Principal + interest payable over long term Loan Loan + Premium Documents Documents BANK(Lender) Mortgage Broker Subprime Customer SIV Investment Bank Loan + Premium Documents converted to Securities(MBS/ABS) Off balance sheet entity CRA Rating Premium CDO Investors Loan + Premium Insurer Insurance Premium
  9. Other linkages Bank Mortgage Broker Investment Bank Insurer CRA
  10. Mistakes <ul><li>Wrong belief of housing prices always going up </li></ul><ul><li>FED overlooked warnings </li></ul><ul><li>Past data reference illusion </li></ul><ul><li>High leveraging </li></ul><ul><li>Miscalculated ratings fooled investors </li></ul><ul><li>Appetite beyond capacity </li></ul><ul><li>Slicing and dicing spread the risk but did not eliminate it </li></ul>
  11. Result- Mortgage Market Housing market nose dives
  12. Sub prime borrower
  13. Investors
  14. Investment Banks Nationalized Bankrupt
  15. Credit Rating Agencies
  16. Insurers <ul><li>Saved by </li></ul><ul><li>government </li></ul><ul><li>funding </li></ul>
  17. Global Equity Markets <ul><li>Lose 45% of </li></ul><ul><li>wealth </li></ul>
  18. Money market
  19. Confidence in Market
  20. Someone got lucky! Alternate investment saw a surge
  21. LEARNING <ul><li>THINK BEFORE YOU ACT </li></ul>
  22. THANK YOU

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