The presentation summarizes the 2008 global financial crisis. It discusses how Iceland's deregulation of its banking sector led to excessive risk-taking and the collapse of its three largest banks. The presentation then outlines the role of US financial engineering and the growth of collateralized debt obligations in fueling the US housing bubble. It describes how risky mortgage lending practices, failures of large investment banks like Lehman Brothers, and the inability of AIG to pay out on insured debt obligations led to the crisis and subsequent global recession.

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3. Presented to International Business Class
Instructor: Sir Imran Bashir
World Recession 2008
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4. Presented by:
Muhammad Asad Bin Asif
ID: 113245
Muhammad Zeeshan Azam
ID: 123220
Hassan Shafiq
ID: 123218
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5. Opening
Case
The Iceland Scenario
 Iceland was stable
 Multinational corporations: Alcoa installed their
business
 Iceland’s various provision deregulations
 Privatization of banks
 Lax requirement on bank loans
 Three the largest banks combined to borrow 10
times Iceland's total GDP
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6. Operations of Banks
 Jon Asgeir Johannesson, Borrowing “billions of
dollars”
 Jon purchased yacht and a private jet
 invested outside iceland
 Iceland being drained of financial resources
Shock
 Banks got Bankrupt
 Market crashed
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9. Background
 During the forty years of economic growth in the
United States, investment banks were small
 Investment banks going public
 Financial sector progressed
 From 1978-2008, the average salary in investment
banking increased
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11. Reagan Administration of U.S.
 Financial deregulation U.S. in early 1980s
 In Late 1980s workers of financial sector were going
to jail
 During 1990s,internet stocks worth to $5t - were
lost.
 Eliot Spitzer, investigation internet crisis
 Investment banks promoting stocks likely to fail
 Ten investment banks outside settlement of $1.4b
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12. Financial Engineering
 A new field of study
 Derivatives developed
 A well-known derivative is an option
 Invest options trade options
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13. Collateral Debt Obligations
There are five positions, in sequential order in
the chain.
 Home buyers
 lenders
 Investment banks
 Investors
 Insurance companies
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16.  The largest financial bubble in history.
 Countrywide Financial issued nearly $100b in
mortgage loans.
 Traded debts through securitization chain and
earning massive sums
 The Lehman Brothers, Richard Fuld, given
$500m in bonuses
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17. Martin Wolf, Chief Economics Commentator for The Financial
Times adds
“It wasn’t real profits, it wasn’t real income….Two, three
years down the road there’s a default – it’s all wiped out. I
think, in recollection, it’s been a great big…global Ponzi
scheme.”
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18. The Investment Bankers and Insurance
 AIG promised to cover the costs on the insured
CDOs
 They did not have the money to do so.
 Paying over $3b in corporate bonuses during this
period.
 Investment bankers spent on luxury: jets, yachts,
mansions, and vacation homes, as well as drugs.
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20. The Crisis
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21.  The Federal Reserve System ignored warnings from
 Raguram Rajan of the IMF
 Domnique Strauss-Kahn of the IMF,
 Nouriel Roubini of New York University
 Allan Sloan of Fortune Magazine.
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22. Accountability of the Loss recorded
• Lehman Brothers reports recorded losses and stock
collapse.
• Numerous investment firms rated double and triple A
before collapse
• The risky mortgages ripped to bankruptcies.
• Bear Stears acquired by ‘J.P. Morgan’: 2 dollars per share.
• Fannie Mae and Freddie Mac, acquired by the US
government
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24. After Crisis Effects:
 The United States declined, through wealth gaps
and outsourcing.
 Manufacturing jobs were diminishing
 China’s unemployment hiked
 Information technology jobs were abundant; but
required educated people
 Tax policies in U.S. favored the wealthy
 Wealth inequality was the highest in the United
States
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25. Resources
• “Junk Mortgages under Microscope” by Allan
Sloan Fortune Magazine October 16, 2007
• “Has Financial Development made the world
Riskier” by Raghurar G. Rajan
• “Why Central Banks Should Burst Bubbles” by
Nouriel Roubini
• “Who’s holding the Bag?” May 2007 Pershing
Square Capital Management, L.P.
• “Inside Job” a Documentary film by Andri
Magnason
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Any Question

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