The subprime crisis was caused by a rise in risky mortgages given to borrowers with poor credit starting in 2007, contributing to a recession. Lenders offered many subprime loans during the mid-2000s housing boom when interest rates were low. When housing prices fell, many subprime borrowers defaulted on their loans. This caused losses for banks and mortgage companies and a freeze in the credit markets. The crisis had ripple effects across the global economy and required government intervention to stabilize markets. While the U.S. economy recovered by 2011, there were lasting impacts on household wealth and debt levels.

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
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