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THE GREAT
RECESSION 2008
CONTENTS
• Reason for the Crisis
• The Subprime Mortgage Crisis
• Predatory Lending
• Deregulation of Financial Institutions
• Fall of Lehman Brothers
• Reforms Made in Government
Regulations
• Reforms Made in Federal Bank
Regulations
2
REASON FOR THE
CRISIS
• Housing Bubble: Rapid increase in housing prices
led to unsustainable levels of mortgage lending.
• Subprime Mortgages: Risky lending practices,
offering mortgages to borrowers with poor credit
histories.
• Securitization: Banks packaged these risky
mortgages into securities, spreading risk
throughout the financial system.
• Deregulation: Relaxation of regulations allowed
for risky financial products and practices to
flourish.
THE SUBPRIME
MORTGAGE CRISIS
• The subprime mortgage crisis was the root cause of the Great
Recession.
• Subprime mortgages were loans made to borrowers with poor
credit histories.
• These loans were often bundled together and sold as mortgage-
backed securities (MBS).
• As housing prices began to fall, many borrowers defaulted on their
subprime mortgages.
• This led to a collapse of the MBS market, which triggered a
financial crisis.
PREDATORY LENDING
• Predatory lending is a deceptive or unfair
lending practice that targets vulnerable
borrowers.
• Subprime lenders often used predatory
lending practices to sell mortgages to
borrowers who could not afford them.
• These practices included misleading
borrowers about the terms of their loans and
pressuring them into signing on the dotted line.
5
DEREGULATION OF
FINANCIAL INSTITUTIONS
• In the years leading up to the Great Recession, there was a
significant deregulation of financial institutions.
• This deregulation allowed banks and other financial
institutions to take on more risk.
• For example, the Gramm-Leach-Bliley Act of 1999 repealed
parts of the Glass-Steagall Act, which had separated
commercial and investment banking since the Great
Depression.
• As a result, many financial institutions were overexposed to
the subprime mortgage market when it collapsed.
6
THE FALL OF LEHMAN BROTHERS
• The collapse of Lehman Brothers was a major turning point in the
financial crisis.
• Lehman Brothers was a major investment bank that was heavily
invested in the subprime mortgage market.
• When Lehman Brothers filed for bankruptcy in September 2008, it
sent shockwaves through the global financial system.
7
REFORMS MADE IN GOVERNMENT
REGULATIONS
•Dodd-Frank Act: Overview of the key provisions aimed at regulating
financial institutions and reducing systemic risk.
•Increased Oversight: Strengthening of regulatory agencies such as
the SEC and CFTC.
8
REFORMS MADE IN
FEDERAL BANK
REGULATIONS
• Basel III Accord: International regulatory framework
for banks, focusing on capital requirements and risk
management.
• Stress Tests: Implementation of stress tests to
assess banks' ability to withstand economic
downturns.
9
CONCLUSION
• Summary of key points: causes of the Great
Recession, reforms made in government and
federal bank regulations.
• Impact: Reflection on the lasting effects of the
crisis on the economy and financial system.
• Future Outlook: Consideration of ongoing
challenges and the importance of vigilant
regulation in preventing future crises.
10
THANK YOU

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Severe Global Financial Crisis Triggered in 2008

  • 2. CONTENTS • Reason for the Crisis • The Subprime Mortgage Crisis • Predatory Lending • Deregulation of Financial Institutions • Fall of Lehman Brothers • Reforms Made in Government Regulations • Reforms Made in Federal Bank Regulations 2
  • 3. REASON FOR THE CRISIS • Housing Bubble: Rapid increase in housing prices led to unsustainable levels of mortgage lending. • Subprime Mortgages: Risky lending practices, offering mortgages to borrowers with poor credit histories. • Securitization: Banks packaged these risky mortgages into securities, spreading risk throughout the financial system. • Deregulation: Relaxation of regulations allowed for risky financial products and practices to flourish.
  • 4. THE SUBPRIME MORTGAGE CRISIS • The subprime mortgage crisis was the root cause of the Great Recession. • Subprime mortgages were loans made to borrowers with poor credit histories. • These loans were often bundled together and sold as mortgage- backed securities (MBS). • As housing prices began to fall, many borrowers defaulted on their subprime mortgages. • This led to a collapse of the MBS market, which triggered a financial crisis.
  • 5. PREDATORY LENDING • Predatory lending is a deceptive or unfair lending practice that targets vulnerable borrowers. • Subprime lenders often used predatory lending practices to sell mortgages to borrowers who could not afford them. • These practices included misleading borrowers about the terms of their loans and pressuring them into signing on the dotted line. 5
  • 6. DEREGULATION OF FINANCIAL INSTITUTIONS • In the years leading up to the Great Recession, there was a significant deregulation of financial institutions. • This deregulation allowed banks and other financial institutions to take on more risk. • For example, the Gramm-Leach-Bliley Act of 1999 repealed parts of the Glass-Steagall Act, which had separated commercial and investment banking since the Great Depression. • As a result, many financial institutions were overexposed to the subprime mortgage market when it collapsed. 6
  • 7. THE FALL OF LEHMAN BROTHERS • The collapse of Lehman Brothers was a major turning point in the financial crisis. • Lehman Brothers was a major investment bank that was heavily invested in the subprime mortgage market. • When Lehman Brothers filed for bankruptcy in September 2008, it sent shockwaves through the global financial system. 7
  • 8. REFORMS MADE IN GOVERNMENT REGULATIONS •Dodd-Frank Act: Overview of the key provisions aimed at regulating financial institutions and reducing systemic risk. •Increased Oversight: Strengthening of regulatory agencies such as the SEC and CFTC. 8
  • 9. REFORMS MADE IN FEDERAL BANK REGULATIONS • Basel III Accord: International regulatory framework for banks, focusing on capital requirements and risk management. • Stress Tests: Implementation of stress tests to assess banks' ability to withstand economic downturns. 9
  • 10. CONCLUSION • Summary of key points: causes of the Great Recession, reforms made in government and federal bank regulations. • Impact: Reflection on the lasting effects of the crisis on the economy and financial system. • Future Outlook: Consideration of ongoing challenges and the importance of vigilant regulation in preventing future crises. 10