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Global crisis
1.
2. Home Loans made to borrowers with
poor credit history, Lower Income
Level and Unsure Employment Statue,
Looking to buy a house and are
prepared to pay interest rate 2% or
higher than rates charged to people
with good credit history.
3.
4.
5. Housing price in USA
began to Drop in 2006.
Rising interest rates &
falling housing price Led
to rise in sub-prime
Mortgage delinquencies &
resultant foreclosure.
6. To save the banks, the US
government proposed a $700
billion bailout, which is a
complex package of loans, and
purchases of some of the toxic
debt.
7. Assumption
That the Situation
Will remain the
Same &
Refinancing
Will be possible
Excessive use
of credit and
debt leverage
Easy credit
encouraged
weaker
borrowers to
assume
mortgages
FED lowered
interest rates
sharply since
2001
Sequence of Events For
US Sub-prime Crisis
Sequence of Events For
US Sub-prime Crisis
Housing price
Fall & rise in
Interest rate
Borrowers
Default
8. IMPACT ON GLOBAL ECONOMYIMPACT ON GLOBAL ECONOMY
Credit got tighter -- banks
became extremely carful parting
with their capital and decreased
lending activities either to
business or to retail customers
or even to each other.
World growth slowed down due to
the global Crisis
9. Effect on Jobs – Employment has fallen by 3.6
million Since Dec. 2007.