A brief on the subprime crisis .......

1. SUBPRIME
Presented By:
Sahil Agarwal

2. What is Sub-Prime Crisis?
• The subprime meltdown was the sharp increase in high-
risk mortgages that went into default beginning in 2007,
contributing to the most severe recession in decades.
• The housing boom of the mid-2000s – combined with
low interest rates at the time – prompted many lenders
to offer home loans to individuals with poor credit.
When the real estate bubble burst, many borrowers were
unable to make payments on their subprime mortgages.
• Its known by various name "credit crunch“, “2008
economic break down”

3. Factors That lead to Crisis
• Post 2001, the US government
had encouraged US banks to lend
money to people.
• These banks granted loans to
large number of borrowers
despite having lower income
levels.
• Rating provided by rating
agencies Eg. moody
• Structured finance instruments
like CDO and CDS.

4. Sequence of Events

5. The Bubble Burst
• A silent storm brewed in international financial
markets with origins in the US housing market,
which witnessed an unprecedented boom since
2001.
• The bubble started inflating more when sub prime
borrowers started defaulting.
• Housing prices in USA began to drop in 2006.
• Result- the bubble burst in September 2008.

6. Dominoes Effect
• Stock markets tanked - Crisis caused panic in the
financial markets and investors sold out and
withdrew their money, resulting in sharp drop in
stock prices.
• Many banks, mortgage lenders, real estate
investment trusts & hedge funds suffered
significant losses.
• Credit got tighter - banks became extremely
careful parting with their capital and decreased
lending activities either to business houses, retail
customers and even to each other

7. Cont...
• In September Lehman brothers files for
bankruptcy Due to which 25000 employees
lost there job.
• There was credit crunch in America....and
unemployment rate was at 10%.

8. Impact on India
• Impact on stock market
• Impact on Indian trade
• Impact on Indian export
• Impaction India’s handloom sector, jewellery
export and tourism
• Exchange rate depreciation
• IT-BPO sector
• FII and FDI

9. Last Life Boat
• Us government saved many companies from
bankruptcy like AIG by putting in 85billion
dollars of funds.
• Bear Stearns was purchased by JP Morgan.
• President brush announced a proposal to buy
illiquid mortgage bag securities(MBS) for us
$700 million .
• US govt. Also announced an $700 billion dollar
bale out plan and passed the legislation.

10. Current Scenario
• The U.S. economy experienced a serious economic
downturn during the Great Recession which
technically lasted from December 2007 – June 2009.
• However, real GDP regained its pre-crisis (late 2007)
peak by 2011, household net worth by Q2
2012, non-farm payroll jobs by May 2014, and the
unemployment rate by September 2015.
• Each of these variables continued into post-
recession record territory following those dates,
with the U.S. recovery becoming the second-longest
on record in April 2018.

11. Cont...
• Debt held by the public, a measure of national
debt, was approximately 77% of GDP in 2017,
ranked the 43rd highest out of 207
countries. Income inequality ranked 41st highest
among 156 countries in 2017.
• The real estate market has recovered and
mortgages have stabilized, household equity has
bounced back to exceed its pre-recession high.
The delinquency rate has also steadily been
sinking back towards its 2005 low of 1.42%.

12. “We were at the brink of something that would
have made anything that's
happened in financial history look pale. We were
very, very close to a
system that was totally dysfunctional and would
have not only gummed up
the financial markets but gummed up the
economy in a way that would take
us years and years to repair” – Warren Buffet
THANKYOU