This document discusses the subprime mortgage crisis and the crash of Lehman Brothers. It provides background on how the US economy emerged over the centuries and discusses key events like the creation of the Federal Reserve in 1913. It then explains how the subprime mortgage crisis began, with low interest rates in the early 2000s leading to a housing bubble. When interest rates rose and housing prices fell, many subprime borrowers defaulted on their loans. This caused losses for banks and investment firms like Lehman Brothers, which collapsed into bankruptcy in September 2008 and helped trigger a global financial crisis.
The recession that began in the late 2000s was, to date, the worst economic downturn in the United States since the Great Depression. They didn't call it the "Great Recession" for nothing.
In a speech following the September 11, 2001, terrorist attacks and in the midst of the accompanying U.S. recession, Federal Reserve Chairman Alan Greenspan made a declaration that turned the world of the investment bankers upside down. Greenspan declared that the FOMC (Federal Open Markets Committee) stood prepared to maintain a highly accommodative policy stance for as long as needed to promote satisfactory economic performance. Translated from central banker speak, what Greenspan meant is that he is willing to inflate the money supply and hence lower interest rates for as long as necessary to “revive” the economy and repair it from the shock it received on that fateful day. What this meant for investors in the U.S. Treasury bond market is that they were not going to make any money on U.S. treasury securities for a very long time. Smart investors, diverted from the bond market, scanned Wall Street for a similar low-risk, high-return investment that could take the place of U.S. Treasury securities, and they fell in love with residential mortgages. On September 18, 2008, after months of economic anxiety and several massive bailouts of distressed firms by the government, the stock market had its largest single-day drop since September 11, 2001. Officials and commentators declared an economic emergency and moved on two fronts. The Department of the Treasury and Federal Reserve Board ("Fed") dusted off a 1932 statute and invoked the Fed's authority to stabilize failing firms by lending them money, although some were allowed to fail.
Presentation at Texas Christian University\'s AddRan Festival Of Undergraduate Scholarship and Creativity, April 2009 and winner of TCU\'s Economic Department Award to Best Presentation in Economics.
The recession that began in the late 2000s was, to date, the worst economic downturn in the United States since the Great Depression. They didn't call it the "Great Recession" for nothing.
In a speech following the September 11, 2001, terrorist attacks and in the midst of the accompanying U.S. recession, Federal Reserve Chairman Alan Greenspan made a declaration that turned the world of the investment bankers upside down. Greenspan declared that the FOMC (Federal Open Markets Committee) stood prepared to maintain a highly accommodative policy stance for as long as needed to promote satisfactory economic performance. Translated from central banker speak, what Greenspan meant is that he is willing to inflate the money supply and hence lower interest rates for as long as necessary to “revive” the economy and repair it from the shock it received on that fateful day. What this meant for investors in the U.S. Treasury bond market is that they were not going to make any money on U.S. treasury securities for a very long time. Smart investors, diverted from the bond market, scanned Wall Street for a similar low-risk, high-return investment that could take the place of U.S. Treasury securities, and they fell in love with residential mortgages. On September 18, 2008, after months of economic anxiety and several massive bailouts of distressed firms by the government, the stock market had its largest single-day drop since September 11, 2001. Officials and commentators declared an economic emergency and moved on two fronts. The Department of the Treasury and Federal Reserve Board ("Fed") dusted off a 1932 statute and invoked the Fed's authority to stabilize failing firms by lending them money, although some were allowed to fail.
Presentation at Texas Christian University\'s AddRan Festival Of Undergraduate Scholarship and Creativity, April 2009 and winner of TCU\'s Economic Department Award to Best Presentation in Economics.
Term paper written for graduate economics course covering the causes of the 2008 global financial crisis and outlining the September 2009 G-20 meeting as it related to addressing the issue.
The Causes of the 2007-08 Financial Crisis: Investigative StudyPhil Goldney
A comprehensive study of the causes of the 2007-08 global Banking Crisis, incorporating primary research from industry professionals. The study amounts to approximately 6000 words. Please contact me for the extensive and comprehensive bibliography.
Niall Ferguson, noted economic historian, author, and Harvard Professor outlined the next steps in the current “Great Depression to a packed Canada 2020 Speakers Series crowd on Monday 23 February. For more, see www.canada2020.ca.
Alternative Currencies: The Solution to the Economic Crisis?Brian McConnell
"What is now being called the 'Great Recession' shows no sign of ending either in the U.S. or elsewhere in the world. What then should be done? In many locations people are increasingly turning to creation of alternative currencies. But can these really be effective?
This and many other questions will be addressed by Richard C. Cook, author and retired U.S. Treasury analyst."
As a resident of Roanoke and director of the Peace Spiritual Center, Richard brings a wealth of information and an open-eyed critique of the most discussed solutions as well as examples from both ancient and recent history.
Following Presentation deals with brief outline over what is known as "Global Recession". It has novice friendly language and attention seeking approach.
The global financial crisis, brewing for a while, really started to show its effects in the middle of 2008. Around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems.
On the one hand many people are concerned that those responsible for the financial problems are the ones being bailed out, while on the other hand, a global financial meltdown will affect the livelihoods of almost everyone in an increasingly inter-connected world. The problem could have been avoided, if ideologues supporting the current economics models weren’t so vocal, influential and inconsiderate of others’ viewpoints and concerns.
This presentation provides an overview of the crisis with links for further, more detailed, coverage at the end.
A crisis so severe, the world financial system is shaken…
Attached is a wonderful presentation by the wizard financial analyst and writer Arif Anees. Hope you'd all relish this rare stuff..
Term paper written for graduate economics course covering the causes of the 2008 global financial crisis and outlining the September 2009 G-20 meeting as it related to addressing the issue.
The Causes of the 2007-08 Financial Crisis: Investigative StudyPhil Goldney
A comprehensive study of the causes of the 2007-08 global Banking Crisis, incorporating primary research from industry professionals. The study amounts to approximately 6000 words. Please contact me for the extensive and comprehensive bibliography.
Niall Ferguson, noted economic historian, author, and Harvard Professor outlined the next steps in the current “Great Depression to a packed Canada 2020 Speakers Series crowd on Monday 23 February. For more, see www.canada2020.ca.
Alternative Currencies: The Solution to the Economic Crisis?Brian McConnell
"What is now being called the 'Great Recession' shows no sign of ending either in the U.S. or elsewhere in the world. What then should be done? In many locations people are increasingly turning to creation of alternative currencies. But can these really be effective?
This and many other questions will be addressed by Richard C. Cook, author and retired U.S. Treasury analyst."
As a resident of Roanoke and director of the Peace Spiritual Center, Richard brings a wealth of information and an open-eyed critique of the most discussed solutions as well as examples from both ancient and recent history.
Following Presentation deals with brief outline over what is known as "Global Recession". It has novice friendly language and attention seeking approach.
The global financial crisis, brewing for a while, really started to show its effects in the middle of 2008. Around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems.
On the one hand many people are concerned that those responsible for the financial problems are the ones being bailed out, while on the other hand, a global financial meltdown will affect the livelihoods of almost everyone in an increasingly inter-connected world. The problem could have been avoided, if ideologues supporting the current economics models weren’t so vocal, influential and inconsiderate of others’ viewpoints and concerns.
This presentation provides an overview of the crisis with links for further, more detailed, coverage at the end.
A crisis so severe, the world financial system is shaken…
Attached is a wonderful presentation by the wizard financial analyst and writer Arif Anees. Hope you'd all relish this rare stuff..
"Whether we like it or not, the laws of gravity work in financial markets as well and what goes up ultimately comes down," Jagannadham Thunuguntla, head of the capital markets arm of India's fourth largest share brokerage firm, the Delhi-based SMC Group, told IANS.
This complete deck can be used to present to your team. It has PPT slides on various topics highlighting all the core areas of your business needs. This complete deck focuses on Financial Crisis PowerPoint Presentation Slides and has professionally designed templates with suitable visuals and appropriate content. This deck consists of total of twenty eight slides. All the slides are completely customizable for your convenience. You can change the colour, text and font size of these templates. You can add or delete the content if needed. Get access to this professionally designed complete presentation by clicking the download button below. https://bit.ly/3fyIZc7
how to sell pi coins in all Africa Countries.DOT TECH
Yes. You can sell your pi network for other cryptocurrencies like Bitcoin, usdt , Ethereum and other currencies And this is done easily with the help from a pi merchant.
What is a pi merchant ?
Since pi is not launched yet in any exchange. The only way you can sell right now is through merchants.
A verified Pi merchant is someone who buys pi network coins from miners and resell them to investors looking forward to hold massive quantities of pi coins before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
Introduction to Indian Financial System ()Avanish Goel
The financial system of a country is an important tool for economic development of the country, as it helps in creation of wealth by linking savings with investments.
It facilitates the flow of funds form the households (savers) to business firms (investors) to aid in wealth creation and development of both the parties
Resume
• Real GDP growth slowed down due to problems with access to electricity caused by the destruction of manoeuvrable electricity generation by Russian drones and missiles.
• Exports and imports continued growing due to better logistics through the Ukrainian sea corridor and road. Polish farmers and drivers stopped blocking borders at the end of April.
• In April, both the Tax and Customs Services over-executed the revenue plan. Moreover, the NBU transferred twice the planned profit to the budget.
• The European side approved the Ukraine Plan, which the government adopted to determine indicators for the Ukraine Facility. That approval will allow Ukraine to receive a EUR 1.9 bn loan from the EU in May. At the same time, the EU provided Ukraine with a EUR 1.5 bn loan in April, as the government fulfilled five indicators under the Ukraine Plan.
• The USA has finally approved an aid package for Ukraine, which includes USD 7.8 bn of budget support; however, the conditions and timing of the assistance are still unknown.
• As in March, annual consumer inflation amounted to 3.2% yoy in April.
• At the April monetary policy meeting, the NBU again reduced the key policy rate from 14.5% to 13.5% per annum.
• Over the past four weeks, the hryvnia exchange rate has stabilized in the UAH 39-40 per USD range.
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
when will pi network coin be available on crypto exchange.DOT TECH
There is no set date for when Pi coins will enter the market.
However, the developers are working hard to get them released as soon as possible.
Once they are available, users will be able to exchange other cryptocurrencies for Pi coins on designated exchanges.
But for now the only way to sell your pi coins is through verified pi vendor.
Here is the telegram contact of my personal pi vendor
@Pi_vendor_247
how can I sell my pi coins for cash in a pi APPDOT TECH
You can't sell your pi coins in the pi network app. because it is not listed yet on any exchange.
The only way you can sell is by trading your pi coins with an investor (a person looking forward to hold massive amounts of pi coins before mainnet launch) .
You don't need to meet the investor directly all the trades are done with a pi vendor/merchant (a person that buys the pi coins from miners and resell it to investors)
I Will leave The telegram contact of my personal pi vendor, if you are finding a legitimate one.
@Pi_vendor_247
#pi network
#pi coins
#money
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what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
USDA Loans in California: A Comprehensive Overview.pptxmarketing367770
USDA Loans in California: A Comprehensive Overview
If you're dreaming of owning a home in California's rural or suburban areas, a USDA loan might be the perfect solution. The U.S. Department of Agriculture (USDA) offers these loans to help low-to-moderate-income individuals and families achieve homeownership.
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Zero Down Payment: USDA loans require no down payment, making homeownership more accessible.
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Eligibility Criteria:
Location: The property must be located in a USDA-designated rural or suburban area. Many areas in California qualify.
Income Limits: Applicants must meet income guidelines, which vary by region and household size.
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Application Process:
Find a USDA-Approved Lender: Not all lenders offer USDA loans, so it's essential to choose one approved by the USDA.
Pre-Qualification: Determine your eligibility and the amount you can borrow.
Property Search: Look for properties in eligible rural or suburban areas.
Loan Application: Submit your application, including financial and personal information.
Processing and Approval: The lender and USDA will review your application. If approved, you can proceed to closing.
USDA loans are an excellent option for those looking to buy a home in California's rural and suburban areas. With no down payment and flexible requirements, these loans make homeownership more attainable for many families. Explore your eligibility today and take the first step toward owning your dream home.
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
how can i use my minded pi coins I need some funds.DOT TECH
If you are interested in selling your pi coins, i have a verified pi merchant, who buys pi coins and resell them to exchanges looking forward to hold till mainnet launch.
Because the core team has announced that pi network will not be doing any pre-sale. The only way exchanges like huobi, bitmart and hotbit can get pi is by buying from miners.
Now a merchant stands in between these exchanges and the miners. As a link to make transactions smooth. Because right now in the enclosed mainnet you can't sell pi coins your self. You need the help of a merchant,
i will leave the telegram contact of my personal pi merchant below. 👇 I and my friends has traded more than 3000pi coins with him successfully.
@Pi_vendor_247
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Financial Crisis of 2008
1. 1 | P a g e
SECOND YEAR BBA SEMESTER III
BUSINESS AND ECONOMIC
ENVIRONMENT – EC 203
GROUP PROJECT
TOPIC: Subprime Mortgage Crisis with
the Crash of Lehman Brothers
SUBMITTED BY:
1. Prashant Ratnani 17131024
2. Siddhant Shah 17131026
3. Shah Darsh 17131022
4. Bijal Shah 17131012
5. Aayushi Patel 17131038
2. 2 | P a g e
The US Economy & its emergence
The Country of United States has had a tough time in the world
economy since its foundation in 1492 by Christopher Columbus.
The Economy had a major upside and downfall in 17th
Century and
the 18th
Century.
They also fought Civil wars between the rich and poor people of the
country and somehow with the efforts of President Abraham Lincon
it saved the country from dividing into 2 parts.
In the early 19th
century the world was in the Industrial development
era and all the countries like the great Britain, European countries,
Russia, Japan and many more were growing at a higher pace and US
economy at that time had great innovators and businessmen like
JOHN.D.ROCKAFELLER, HENRY FORD, J.P.MORGAN & ROTHSCHILD
who had seen the US economy as a great industrial superpower.
But somehow the economy has various boom and bust period within
itself in the past 200 years which stagnated its growth in the long
term so all the rich and wealthy people the country decided to meet
together at one place (Jekyll Island) and draft the legislation policy of
having a permanent central bank in the United States of America.
In 1913, bankers and politicians decided that it was in the country's
best interest, and theirs, to have a permanent central bank.
They created the Federal Reserve, among its jobs, expand or
contract the supply of a single national currency, the Federal Reserve
note.
The dollar was tied to gold standard system and strategic control of
the dollar would avoid booms that lead to busts. At least that was
the plan.
Then came 1929. The great depression would have a profound effect
on monetary policy worldwide.
3. 3 | P a g e
The Great Depression had wiped out millions of investors wealth in
just 2 years, the Dow Jones Industrial Average came down from 360
points in 1929 to 40 points in 1933.
The Unemployment rate in the economy went from 10% in 1929 to
40% in 1933. The economic deflation in the US was around 25%.
The Federal Reserve had printed nearly all the money it legally could
to pump life back into the economy, but still the US economy wasn’t
coming out of deflation.
So in 1933, President Roosevelt issued a controversial executive
order, forcing all U.S. citizens to sell their gold to the Federal Reserve
at a fixed price, or go to prison.
The dollar had become the world's most stable and trusted currency.
Other countries pegged their currency to the dollar, which could still
be redeemed for gold.
In 1971, President Nixon settled the matter. He severed United
States' currency from the gold standard. This led to the rise of the US
National Debt as the government started borrowing money from
foreign countries for meeting the development of the economy in
surplus.
Since 1971, the US National Debt has increased from US$100 Million
to US$21.5 Trillion in September 2018. Today it is even more than
the combined GDP of the entire country.
The United States saw several Boom’s and Bust’s cycles in this period
it had several Stock Market crashes since then like the:
1. The Stock Market crash of 1987
2. The Dot.com Bubble Bust of 1999-2000
3. The Housing Crash of 2008
4. Soon we will have one more in next 1 or 2 years, let’s be prepared
4. 4 | P a g e
How it all started in the first place
In the year 2000 when the dot.com bubble got bust the Federal
Reserve Bank reduced the interest rates from 5% to 1%.
The reason for decrease in interest rates was mainly because of
decrease in borrowing from the people in Unites States.
This led to increase in inflation rates and increase in demand for
housing loans which led to, too many people asking for loans and
buying.
Real estate purchases rose not only for subprime borrowers, but for
well-off Americans as well.
As prices rose and people expected a continuation of that, investors
who got burned by the dot.com bubble of early 2000s and needed a
replacement in their portfolio started investing in real estate.
Housing prices were rising rapidly, and the number of subprime
mortgages given out was rising even more. By 2005, some began to
fear that this was a housing bubble.
From 2004-2006, the Federal Reserve raised the interest rate over a
dozen times in an attempt to slow this down and avoid serious
inflation.
By the end of 2004, the interest rate was 2.25% and by mid-2006 it
was 5.25%.
This was unable to stop the inevitable. The bubble got burst and in
2005 and 2006 the housing market crash back down to earth.
Subprime mortgage lenders begin laying thousands of employees
off, if not filing for bankruptcy or shutting down entirely.
Lehman Brothers and American International Group filed for
bankruptcy, as they had mortgaged backed securities of high risk
which were unsecured.
5. 5 | P a g e
Lehman Brothers was one of the largest investment banks in the
world for years. It was also one of the first investment banks to get
very involved with investing in mortgages, something that would pay
off until it became their downfall.
The plummeting price of real estate and the widespread defaulting
on mortgages crushed Lehman Brothers. They were forced to close
their subprime lenders, and despite their many attempts to stop the
bleeding (such as issuing stock) they continued to take on losses
until, on Sept. 15, 2008, Lehman Brothers applied for bankruptcy.
Lehman Brothers was one of the most prominent financial-service
firms in the world. Its rapid descent into bankruptcy was a major
cause of the 2008 stock market crash.
6. 6 | P a g e
What cause subprime mortgage
crisis?
In 1996 USA was going through a Dot.com Boom and in between
2000 and 2002 the Dot.com Bubble busted and Stock market
crashed as investors started withdrawing their money from the Stock
market.
Interest rates were also low thus investors weren’t interested to
keep their money in banks thus investors were in search of good
investment option in United States
At that time the prices of Real Estate were on a rise and therefore
the government also encouraged people to buy houses.
Since Interest rates were very low, due to which people were buying
more houses and thus the demand of housing and the prices also
went up.
This led to more investors diverting towards US real estate market as
prices of Real Estate were increasing due to high demand and they
can generate high income from sales of Real Estate.
7. 7 | P a g e
Investment Banks in USA also wanted to take benefit of the rising
trend of real estate in the market.
Morgan Stanley, Goldman Sachs and Lehman Brothers were
investment banks in USA at that time.
Investment banks started acquiring loans from the bank and started
making derivative instruments like collatenalized debt obligation
(CDO) and started selling them to individual investors.
Many investment banks started getting “AAA” credit rating from
agencies in order to sell their CDOs.
In a normal case if a bank gives loan to borrowers it verifies the basic
details of buyers such as income statement and credit score of the
buyer.
Since the loans were being transferred to investment banks and
these investment banks were then transferring the loans to
institutional investors in the form of CDOs.
Investment banks started transferring risk of subprime loans to
institutional investors.
Since Credit Rating agencies started rating the CDO’s at “AAA” rating
the investors flooded to buy those securities in huge demand.
Due to high demand for CDO’s by the Investment Banks they started
asking banks for more loans and banks started giving out more loans
to the people at high risk of not getting repayment on time and
defaulting loans.
This led to rise in low quality loans or Subprime loans, in order to
earn more money from Investment Banks in the form of commission
the banks started giving more of Subprime loans.
Investment Banks in order to earn more money from Subprime loans
started getting “AAA” credit rating from rating agencies like Moody’s
so that investors buy more of those CDO’s.
8. 8 | P a g e
Countrywide Financial Corporation and Amerquest Mortgage
Company together had given Subprime loans of $177 Billion.
From 2000 to 2007 Investment Banks were selling Billions of Dollars
worth of CDO’s and earning Billions of Dollars worth of profits by
selling them to investors at a high risk.
With all this Credit Rating agencies were also making huge amounts
in profits, Moody’s which is one of the biggest credit rating agency of
USA, saw a surge in its Net profit by 4 times between the year 2000
to 2007.
American International Group(AIG) which is USA biggest insurance
company started giving insurance against CDO’s known as Credit
Default Swap(CDS).
Since almost 70% of the CDO’s were given “AAA” rating AIG started
giving insurance against all CDO’s to protect investors money.
AIG didn’t realize that if CDO’s fail then they will have to repay back
money in huge sum and they might go under huge losses.
Banks in USA had given housing loans to borrowers in a Adjustable
Rate with a fixed interest rate of 1%, but due to high demand in
housing market the Federal Reserve on United States of America
increased interest rates from 1% in 2000 to 6.5% in 2007.
9. 9 | P a g e
Borrowers had taken loans from the banks at Adjustable Interest
Rate due to which in the initial years they had to less amounts in the
form of EMI’s but as the interest rates increased their EMI’s also
increased.
The result was that people who had taken Subprime loans were not
able to payback the loan amount and they started defaulting on their
loan payments.
Banks then started selling the houses of the people who had
defaulted on their loan payment, this happened because banks
didn’t check the credibility of the borrowers before giving them
loans.
Borrowers had taken loans for their property from the banks in the
form of 100% loans and they had not paid any amount of down
payment for their loans.
50% of the Borrowers had taken loans from the banks in the form of
100% loans and didn’t pay any down payment.
Due to this many people started defaulting on their loans and the
banks had a huge supply of houses which were ready to be sold in
the market but due to low housing demand and huge supply of
houses the price of Real Estate decreased by almost 80%.
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Money Supply in the US economy increased from $4.8 Trillion to
$7.4 Trillion between years 2000 to 2008.
In 2008 when Real Estate prices started dropping a house bought in
the year 2005 for US$100,000 was valued at US$70,000 in the year
2008.
Borrowers started defaulting their loans as the value of their house
started decreasing.
Due to this the value of CDO’s in the market became zero and
investors lost all their money.
The Investors and fund managers who were aware of the Subprime
loans had bought CDS’s in large amounts to protect their investment,
and when CDO’s failed they earned a huge profit from the Insurance
companies.
American International Group in 2008 reported a loss of US$99
Billion due to too many CDO’s failing and paying money to investors
for their investment paid to them in CDS’s.
The Federal Reserve Bank paid AIG a sum of US$85 Billion to bail
them out of their losses which they incurred.
The total accumulated loss by all financial intermediaries was upto
US$450 Billion dollars.
There was no regulation on CDO’s and CDS’s and because of this a
crisis started growing in the US economy due to which credit crunch
started growing in the US economy and many businesses also started
going shutting down as credit was unavailable
This led to rise in Unemployment in the US economy and also led to
global recession which affected global markets.
US Stock Market Dow Jones crashed from 16000 bps and came down
to 6000 bps.
Indian Stock Market Sensex came down from 24000 bps to 8000 bps.
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Effects of Subprime Mortgage
Crisis
Home prices fell tremendously as the housing bubble completely
burst. This crushed many recent homeowners, who were seeing
interest rates on their mortgage rise rapidly as the value of the home
deteriorated.
Unable to pay their mortgage on a monthly payment and unable to
sell the home without taking a massive loss, many had no choice.
The banks foreclosed on their houses. Homeowners were left in
ruins, and many suburbs turned into ghost towns.
Even homeowners with good credit who qualified for standard
mortgages struggled with the steadily rising interest rates.
By the time these homes were foreclosed upon, they had cratered in
value. That meant banks were also taking massive losses on real
estate.
Investors got hit hard as well, as the value of the mortgage-backed
securities they were investing in tumbled.
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This was made more difficult due to people still buying homes even
as the bubble began to burst in 2006 into early 2007.
Loans were still being given out and taken as sales slumped.
Investment banks who bought and sold these loans that were being
defaulted on started failing.
Lenders no longer had the money to continue giving them out. By
2008, the economy was in complete freefall. Some institutions got
bailed out by the government. Other banks, who had gotten so
involved in the mortgage business, were not so lucky.
The US National Debt rapidly increased after the housing crisis as the
Federal Reserve and the US government had to spend trillions of
dollars to bail out the financial intermediaries.
Since 2008 the US National Debt has increased from $5 Trillion to
$21.5 Trillion in 2018.
Each American citizen owes the US Government $600,000 in the
form of Money spent on them over the years.
The US economy has been stable since the crash of 2008 as stock
market took 3 years to recover from a huge meltdown.
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Lehman Brothers and their Crisis
Lehman Brothers was one of the largest investment banks in the
world for years.
It was also one of the first investment banks to get very involved
with investing in mortgages, something that would pay off until it
became their downfall.
The plummeting price of real estate and the widespread defaulting
on mortgages crushed Lehman Brothers.
They were forced to close their subprime lenders, and despite their
many attempts to stop the bleeding they continued to take on losses
until, on Sept. 15, 2008, Lehman Brothers applied for bankruptcy.
Lehman Brothers was one of the most prominent financial-service
firms in the world. Its rapid descent into bankruptcy was a major
cause of the 2008 stock market crash.
Lehman Brothers share price dropped from US$60 to 25 cents a
share in late 2008.
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AIG and their Crisis
The collapse and near-failure of insurance giant American Interna-
tional Group (AIG) was a major moment in the recent financial crisis,
AIG a global company with about $1 Trillion in assets prior to the cri-
sis, lost $99 billion in 2008.
On September 16 of that year, the Federal Reserve Bank of New York
stepped in with an $85 billion loan to keep the failing company from
going under.
AIG's bailout has not come without controversy. Some have
criticized whether or not it is appropriate for the government to
use taxpayer money to purchase a struggling insurance company.
Also, the use of the public funds to pay out bonuses to AIG's officials
has only caused its own uproar.
However, others have said that, if successful, the bailout will actually
benefit taxpayers due to returns on the government's shares of the
company's equity.
AIG's share price dropped from US$1000 to 1 dollar a share in late
2008.
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Conclusion
The Subprime Mortgage Crisis of 2008 had a huge impact on the US
economy and the world economy as a whole, it made many concept
in economics false by stating that anything can happen if money isn’t
used wisely.
If the Federal Reserve and the government wouldn’t have come in
between and reacted to the situation then the housing crash would
have been the worst financial disaster for the United States of
America.
The Global monetary loss due to housing crash was over US$ 10
Trillion.
Many businesses went bankrupt and people lost their jobs and
homes to live.
The Housing Crash taught us that if financial intermediaries are not
regulated then they might misuse the power that money has and use
it to their benefit to earn more profits.
The Crisis could have been avoided if the Federal Reserve chairman
Alan Greenspan would have made some regulations on the sales of
CDO’s and CDS’s so that investment banking companies and
investors don’t misuse it.
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Bibliography
1. thestreet.com
2. investopedia.com
3. scribed.com
4. youtube.com