[SERIES 4/4] The Global Financial Crisis (2007 - 2009) from the Frederic Mishkin's The Economics of Money, Banking, and Financial Markets Financial Crises on Advanced Economies Chapter Outline: SERIES 1: Factors Causing Financial Crises SERIES 2: Dynamics of Financial Crises in Advanced Economies Series 3: The Great Depression SERIES 4: The Global Financial Crisis of 2007 - 2009 (The Great Recession) Other Sources: The Causes and Effects of the 2008 Financial Crisis https://www.youtube.com/watch?v=N9YLta5Tr2A

1. GLOBALFINANCIAL
C R I S I S
2007 -
2009

2. EVERYONE

3. homeowners INVESTORS

4. homeowners INVESTORS
BANKS
BROKERS

5. TREASURY
BONDS

6. September11,2001
Lower Returns
Cheap Lending or CheapCredit1% =

7. INVESTORSLOOKFORSECURITIES
WITHHigher returns than
the FED’s 1%.

9. Causes
ofthe FinancialCrisis

10. DATA MINING

11. Securitization

12. Lewis
Ranieri

13. Mortgage broker
lender
mortgage

14. Mortgage broker
lender
mortgage
Investment
bank
Box of
mortgages

15. COLLATERALIZED DEBT
OBLIGATION(CDOs)
aaa
bbb
INVESTOR 1 INVESTOR 2 INVESTOR 3
Buys aaa Buys bbbBuys aa

16. Mortgage broker
(AGENT)
INVESTORS
(PRINCIPAL)

17. ORIGINATE-TO-
DISTRIBUTE MODEL
PROBLEM=Broker



18.   
WIN-WIN

19. Credit default swapsCommercial and
investment banks
CDS

21. CONFLICTS OF
INTEREST

22. Financial Innovations
Emerge in the Mortgage
Market
Agency Problem in the
Mortgage Markets
Asymmetric Information
and Credit-Rating
Agencies
1
2
3

23. EFFECTS
onthe FinancialCrisis

24. Residential Housing Prices:
Boom and Bust
Deterioration of Financial
Institutions’ Balance Sheets
High-Profile Firms Fail
Crisis Spreads Globally
Run on the Shadow Banking
System
1
2
3
4
5

27. 




29. SUPPLY > DEMAND
HOUSING PRICE
Mortgageprice > Housingprice
 DEFAULTS
SALE

31. 

’

32. 
BANKRUPTCY

33. ASSETS=$600 BILLION
25,OOO EMPLOYEES
DEBT: $619 BILLION
LARGEST BANKRUPTCY IN US HISTORY

34. Issued$5 Trillion
mortgage-backed assets
bailout: $189BILLION
BIGGEST BAILOUT IN US HISTORY

35. fifth-largest investment bank
bailed out by the NY Fed
forced to merge/sold itselfto JP Morgan.

36. Merrill lynch
3rd largest Investment Bank
Sold itself to Bank of America

37. ASSET:
$1 Trillion
Cds issued:
$400 billion
Bailout:
$85 billion
Insurance giant

39. ShadowBanks
Funded by REPOS (repurchaseagreements)

40. 


’


41. •
•
•

43. height
ofthe FinancialCrisis

44. Credit
Spread Peak
(December 2008)

45. Government
Intervention
and the Recovery

46. Massivebail-outs:
Troubled Asset Relief Plan(TARP)
’

47. Economic Recovery Act
Bush Administration Economic
Stimulus Act(2008)

48. Obama’s American Recovery and
Reinvestment Act(2009)

49. ’