The document summarizes the subprime mortgage crisis. It begins by explaining what subprime mortgages are and how they differ from conventional mortgages. It then describes how the housing bubble developed in the late 1990s and early 2000s as subprime lending increased and home prices rose rapidly. Eventually, the bubble burst in 2006-2007 as subprime borrowers defaulted on adjustable rate mortgages. This led to billions lost in mortgage-backed securities and major financial institutions suffering huge losses, with some like Lehman Brothers collapsing entirely.
The document provides an overview of the subprime mortgage crisis, including:
1) It explains what subprime and prime loans are and defines what a crisis is.
2) The housing bubble burst as home prices declined after peaking in 2006, increasing foreclosures.
3) This sent a shock through the financial system as investment banks and other institutions incurred major losses on mortgage-backed securities.
The document summarizes the subprime mortgage crisis and its global impacts. It began with loose lending practices in the US that led to a housing bubble. When housing prices declined and borrowers defaulted, it sparked a financial crisis as risky loans were bundled into securities that spread the risks throughout the global financial system. Major banks and financial institutions collapsed. Credit tightened globally and stock markets plunged significantly. The crisis also impacted economies worldwide through tightening credit, falling markets, and reduced trade and business activity. While government interventions helped stabilize markets, full recovery will take time as the financial systems remain fragile.
Introducing Subprime Mortgage Crisis PowerPoint Presentation Slides. The presentation highlights the impact of the financial crisis of the year in percentages. Take the advantage of our ready-to-use PPT template to showcase fall in housing prices, unemployment, etc. during a crisis. The impact of a great recession on investment banks is also discussed in this presentation. This content-ready slide design also illustrates the significant financial bubble burst of financial years. Highlight the cost of the financial crisis and its key members. The effects of the crisis on the economy of the US can be effectively discussed using our PPT theme. Showcase how the crisis started spreading in various other parts of the country with the use of this PPT visual. Depict how CDO customers protect themselves during the recession. Explain the effect of subprime in many countries with this PPT theme. Further, describe the current scenario after a decade of a financial crisis in the US. Explain fed tapering, quantitative easing, etc. effectively by using this PPT slideshow. At last, the presentation discusses the vision, mission, and goals of the company. https://bit.ly/2PeSvsw
1. The 2008 financial crisis was caused by the bursting of the housing bubble in the U.S., also known as the subprime mortgage crisis.
2. Subprime lending involves giving loans to borrowers who may have difficulty maintaining repayments, and are characterized by higher interest rates and poorer terms.
3. The crisis occurred due to a relaxation in lending regulations, poor creditworthiness of borrowers, rising housing prices, and borrowers' inability to pay their mortgages, leading to failures of major banks and financial institutions.
The document discusses the causes and impacts of the subprime mortgage crisis that began in 2008. It describes how loose lending practices led to many borrowers taking out loans they could not afford, resulting in mass foreclosures when borrowers defaulted. This undermined the mortgage industry and global credit markets. The crisis significantly impacted the US and European economies through loss of home equity and wealth, rising unemployment, and declining GDP.
The document discusses the subprime mortgage crisis that occurred in the United States. It begins by defining prime and subprime loans, with subprime loans going to borrowers with poorer credit histories and higher interest rates. A housing bubble formed as subprime mortgages increased and home prices rose, but this bubble eventually burst in 2005-2006. As home prices dropped and borrowers defaulted on subprime loans, large losses were incurred by financial institutions, investment banks, and foreign investors. The US government responded with a $800 billion bailout package and other legislation to provide relief and regulate derivatives that had worsened the crisis.
This presentation explains the events and causes that led to Global Financial Crisis in 2007-08, mainly focused on Collateralized Debt Obligations, Sub-Prime Mortgages, Credit Default Swaps and Housing Bubble.
The document provides an overview of the subprime mortgage crisis, including:
1) It explains what subprime and prime loans are and defines what a crisis is.
2) The housing bubble burst as home prices declined after peaking in 2006, increasing foreclosures.
3) This sent a shock through the financial system as investment banks and other institutions incurred major losses on mortgage-backed securities.
The document summarizes the subprime mortgage crisis and its global impacts. It began with loose lending practices in the US that led to a housing bubble. When housing prices declined and borrowers defaulted, it sparked a financial crisis as risky loans were bundled into securities that spread the risks throughout the global financial system. Major banks and financial institutions collapsed. Credit tightened globally and stock markets plunged significantly. The crisis also impacted economies worldwide through tightening credit, falling markets, and reduced trade and business activity. While government interventions helped stabilize markets, full recovery will take time as the financial systems remain fragile.
Introducing Subprime Mortgage Crisis PowerPoint Presentation Slides. The presentation highlights the impact of the financial crisis of the year in percentages. Take the advantage of our ready-to-use PPT template to showcase fall in housing prices, unemployment, etc. during a crisis. The impact of a great recession on investment banks is also discussed in this presentation. This content-ready slide design also illustrates the significant financial bubble burst of financial years. Highlight the cost of the financial crisis and its key members. The effects of the crisis on the economy of the US can be effectively discussed using our PPT theme. Showcase how the crisis started spreading in various other parts of the country with the use of this PPT visual. Depict how CDO customers protect themselves during the recession. Explain the effect of subprime in many countries with this PPT theme. Further, describe the current scenario after a decade of a financial crisis in the US. Explain fed tapering, quantitative easing, etc. effectively by using this PPT slideshow. At last, the presentation discusses the vision, mission, and goals of the company. https://bit.ly/2PeSvsw
1. The 2008 financial crisis was caused by the bursting of the housing bubble in the U.S., also known as the subprime mortgage crisis.
2. Subprime lending involves giving loans to borrowers who may have difficulty maintaining repayments, and are characterized by higher interest rates and poorer terms.
3. The crisis occurred due to a relaxation in lending regulations, poor creditworthiness of borrowers, rising housing prices, and borrowers' inability to pay their mortgages, leading to failures of major banks and financial institutions.
The document discusses the causes and impacts of the subprime mortgage crisis that began in 2008. It describes how loose lending practices led to many borrowers taking out loans they could not afford, resulting in mass foreclosures when borrowers defaulted. This undermined the mortgage industry and global credit markets. The crisis significantly impacted the US and European economies through loss of home equity and wealth, rising unemployment, and declining GDP.
The document discusses the subprime mortgage crisis that occurred in the United States. It begins by defining prime and subprime loans, with subprime loans going to borrowers with poorer credit histories and higher interest rates. A housing bubble formed as subprime mortgages increased and home prices rose, but this bubble eventually burst in 2005-2006. As home prices dropped and borrowers defaulted on subprime loans, large losses were incurred by financial institutions, investment banks, and foreign investors. The US government responded with a $800 billion bailout package and other legislation to provide relief and regulate derivatives that had worsened the crisis.
This presentation explains the events and causes that led to Global Financial Crisis in 2007-08, mainly focused on Collateralized Debt Obligations, Sub-Prime Mortgages, Credit Default Swaps and Housing Bubble.
This document discusses the causes and impacts of the 2007-2008 global financial crisis. It identifies several factors that contributed to the crisis, including low interest rates, excessive lending, deregulation, and the growth of risky financial instruments. The crisis began with the collapse of the US housing market and spread globally. While India's banking system was not directly impacted, the country still experienced effects such as declines in its stock and currency markets, slower industrial and export growth, job losses, and increased poverty. Agriculture, IT, and other sectors were also negatively impacted.
[SERIES 4/4] The Global Financial Crisis (2007 - 2009)
from the Frederic Mishkin's The Economics of Money, Banking, and Financial Markets
Financial Crises on Advanced Economies Chapter
Outline:
SERIES 1: Factors Causing Financial Crises
SERIES 2: Dynamics of Financial Crises in Advanced Economies
Series 3: The Great Depression
SERIES 4: The Global Financial Crisis of 2007 - 2009 (The Great Recession)
Other Sources:
The Causes and Effects of the 2008 Financial Crisis
https://www.youtube.com/watch?v=N9YLta5Tr2A
The document provides an overview of the global financial crisis of 2008. It discusses several key points:
- The US housing market boom from 2002-2006 led to a housing price bubble that eventually burst, contributing to the crisis. As housing prices declined sharply from their 2006 peak, foreclosures and defaults increased substantially.
- Loose monetary policy by the US Federal Reserve from 2002-2004, keeping interest rates low, fueled risky lending and the housing bubble. When rates rose in 2005-2006, the default rate on adjustable mortgages skyrocketed.
- Highly leveraged investment banks collapsed in 2008 as default rates rose due to declining lending standards. Stock prices around the world plummeted nearly 40
Overview about The financial Crisis in 2008. The presentation with 4 main points: reasons, development (also including responses), and consequences.
We hope that this is an easy source of information for you to understand this crisis.
This is a simple and clear overview of what the credit crunch is, what caused it and the current status of the financial system with special focus on hte Irish situation.
The Financial Crisis of 2008 was caused by a housing bubble fueled by excessive leverage and risky lending practices. As home prices declined and credit tightened, consumers and financial institutions were squeezed, resulting in a recession. While the recession may be longer than expected due to deleveraging, history shows that technological innovation and global trade will support long-term economic growth. To navigate the current volatility, investors should stick to their long-term plan and take advantage of opportunities while maintaining a diversified portfolio and emergency funds.
The document discusses the causes and effects of the 2008 global financial crisis. It began with the collapse of the US housing market and subprime mortgage crisis. Low interest rates led to increased lending to subprime borrowers who took on mortgages they could not repay. These risky loans were repackaged and sold globally. When housing prices declined, borrowers defaulted, damaging financial institutions and triggering a global recession. India was impacted through declines in exports, foreign investments, and economic growth, though its banks were more stable due to stronger regulations.
The 2008 Global Financial Crisis was caused by a rise and fall in housing prices, loose monetary policy by the Fed that fueled risky lending, and the collapse of major investment banks due to their leveraged positions. It led to a recession characterized by falling home values, high unemployment, declining manufacturing and automotive industries, and financial losses for colleges. However, some developing countries were less impacted. The crisis also contributed to a shift in global power towards countries like China, India, and Brazil. Governments responded by reducing interest rates, increasing spending on infrastructure, lowering taxes and boosting transfer payments, and establishing funds to provide companies with access to capital.
The document summarizes the subprime mortgage crisis. It explains that subprime mortgages are high-interest loans given to borrowers with poor credit who could not qualify for standard mortgages. Many borrowers took out adjustable-rate subprime mortgages when housing prices were rising, expecting to refinance before rates increased. However, when housing prices fell, borrowers could not refinance and began defaulting, leading to a wave of foreclosures. This crisis significantly impacted the US and global economies, with major financial institutions writing off billions of dollars in losses. Governments responded with bailouts and efforts to assist homeowners and regulate derivatives.
The World Bank provides various types of lending operations and guarantees to support poverty alleviation and sustainable development. Its top contributors are the USA, Japan, Germany, UK, and France. Investment lending finances infrastructure and includes specific investment loans, sector investment and maintenance loans, and emergency recovery loans. Adjustment lending supports policy reforms through structural adjustment loans, sector adjustment loans, and debt reduction loans. World Bank guarantees include project-based partial risk guarantees, project-based partial credit guarantees, and policy-based guarantees to facilitate private sector financing.
Long Term Capital Management (LTCM) was a hedge fund founded in 1994 by John Meriwether that utilized quantitative models and leverage to profit from convergence trades. While initially successful, LTCM lost billions in 1998 during the Russian financial crisis as markets became volatile and liquidity dried up. To prevent systemic risk, the Federal Reserve orchestrated an emergency bailout. The crisis showed that highly leveraged positions are vulnerable to shifts in market liquidity and correlations between assets. Key lessons include incorporating liquidity as a risk factor, stress testing models, and relying more on judgment than purely quantitative analysis.
The document summarizes the global financial crisis that began in 2007 and its causes and consequences. It was triggered by losses in the US subprime mortgage market and the bankruptcy of Lehman Brothers. The crisis spread due to securitization of risky mortgages and moral hazard. This led to job losses, bankruptcies, declining consumption and aversion to risk. Governments responded with bank bailouts and stimulus spending while regulators aimed to reduce conflicts of interest and better oversee financial markets.
The document summarizes the collapse of Lehman Brothers investment bank in September 2008. It provides background on Lehman Brothers and explains the key reasons for its bankruptcy, including losses from subprime mortgage loans, a lack of confidence from other banks, and the refusal of potential acquirers like Barclays. The CEO's pride and refusal to sell at a lower price were also factors. The fall of Lehman Brothers and Merrill Lynch's acquisition by Bank of America shocked markets and increased uncertainty about other financial institutions like AIG and Washington Mutual. The events also increased risk perceptions in Indian markets.
The Global Financial Crisis was caused by expanded lending to subprime borrowers in the US housing market who struggled to repay their loans, spreading losses to financial institutions globally through interconnected credit markets. The crisis impacted developing countries through lower exports due to reduced demand from industrial nations and less foreign investment as risk appetite declined. Central banks addressed the crisis through liquidity injections and government rescue plans, while major banks consolidated to avoid bankruptcy.
This is a recording of a revision webinar exploring some of the causes of financial crises in developed and emerging market countries. There are many different types of crises ranging from currency/external debt crises to disturbances in banking systems.
The document summarizes key events and causes of the 2007-2009 financial crisis. It notes that housing prices increased sharply until 2005 but then leveled off and declined, default and foreclosure rates increased in 2006, and major investment banks collapsed in 2008. The crisis was sparked by the decline in US housing prices, which reduced the value of mortgage-backed securities and threatened the solvency of financial institutions due to leverage. The crisis put the US and world economies into a deep recession, the largest since the Great Depression.
The subprime mortgage crisis was triggered by rising mortgage delinquencies and foreclosures in the United States starting in 2007. Many subprime mortgages were issued with little or no down payment to borrowers with low incomes, assets, and credit histories. When housing prices declined and mortgage rates rose, mortgage defaults soared, causing losses for financial firms holding mortgage-backed securities. This led to a tightening of credit worldwide and government bailouts of major banks and financial institutions.
The document discusses debt markets in Pakistan, including an overview of bond markets globally and their importance for economic development. It then provides details on the bond market in Pakistan, including the types of bonds issued by the government and private sector as well as the current small size of the domestic bond market. Challenges and opportunities for expanding the bond market in Pakistan are also examined.
The document provides a summary of the key causes and events of the global financial crisis that began in 2007-2008. It discusses how a decline in lending standards and rising housing prices in the US encouraged many homeowners to take on difficult mortgages. Once housing prices dropped and interest rates rose, defaults and foreclosures increased dramatically. US banks had repackaged risky mortgages into complex financial products that were distributed globally, spreading risk throughout the financial system and making the effects of the crisis global in scale. The document outlines several major events such as the failures of Bear Stearns and Lehman Brothers that accelerated the crisis.
The document discusses various factors that contributed to the 2008 financial crisis, including:
- Congress pushing homeownership too aggressively
- The Fed keeping interest rates too low
- Predatory lenders taking advantage of unqualified home buyers
- Home buyers taking on mortgages they couldn't afford
- Lax banking regulations under the White House
- Finance executives selling risky products for profit without understanding the risks
- Rating agencies underestimating the risks of mortgage-backed securities
This document provides an overview of the 2008 subprime mortgage crisis in the United States. It defines subprime loans as high-risk loans given to borrowers with poor credit. In the early 2000s, low interest rates and rising home prices fueled increased subprime lending. However, starting in 2006, subprime borrowers began defaulting on mortgages as home prices declined. These mortgage defaults led to losses in mortgage-backed securities, damaging global financial markets and resulting in a global recession in 2008. India was less impacted than other countries due to regulations on its financial system and restrictions on risky lending practices.
This document discusses the causes and impacts of the 2007-2008 global financial crisis. It identifies several factors that contributed to the crisis, including low interest rates, excessive lending, deregulation, and the growth of risky financial instruments. The crisis began with the collapse of the US housing market and spread globally. While India's banking system was not directly impacted, the country still experienced effects such as declines in its stock and currency markets, slower industrial and export growth, job losses, and increased poverty. Agriculture, IT, and other sectors were also negatively impacted.
[SERIES 4/4] The Global Financial Crisis (2007 - 2009)
from the Frederic Mishkin's The Economics of Money, Banking, and Financial Markets
Financial Crises on Advanced Economies Chapter
Outline:
SERIES 1: Factors Causing Financial Crises
SERIES 2: Dynamics of Financial Crises in Advanced Economies
Series 3: The Great Depression
SERIES 4: The Global Financial Crisis of 2007 - 2009 (The Great Recession)
Other Sources:
The Causes and Effects of the 2008 Financial Crisis
https://www.youtube.com/watch?v=N9YLta5Tr2A
The document provides an overview of the global financial crisis of 2008. It discusses several key points:
- The US housing market boom from 2002-2006 led to a housing price bubble that eventually burst, contributing to the crisis. As housing prices declined sharply from their 2006 peak, foreclosures and defaults increased substantially.
- Loose monetary policy by the US Federal Reserve from 2002-2004, keeping interest rates low, fueled risky lending and the housing bubble. When rates rose in 2005-2006, the default rate on adjustable mortgages skyrocketed.
- Highly leveraged investment banks collapsed in 2008 as default rates rose due to declining lending standards. Stock prices around the world plummeted nearly 40
Overview about The financial Crisis in 2008. The presentation with 4 main points: reasons, development (also including responses), and consequences.
We hope that this is an easy source of information for you to understand this crisis.
This is a simple and clear overview of what the credit crunch is, what caused it and the current status of the financial system with special focus on hte Irish situation.
The Financial Crisis of 2008 was caused by a housing bubble fueled by excessive leverage and risky lending practices. As home prices declined and credit tightened, consumers and financial institutions were squeezed, resulting in a recession. While the recession may be longer than expected due to deleveraging, history shows that technological innovation and global trade will support long-term economic growth. To navigate the current volatility, investors should stick to their long-term plan and take advantage of opportunities while maintaining a diversified portfolio and emergency funds.
The document discusses the causes and effects of the 2008 global financial crisis. It began with the collapse of the US housing market and subprime mortgage crisis. Low interest rates led to increased lending to subprime borrowers who took on mortgages they could not repay. These risky loans were repackaged and sold globally. When housing prices declined, borrowers defaulted, damaging financial institutions and triggering a global recession. India was impacted through declines in exports, foreign investments, and economic growth, though its banks were more stable due to stronger regulations.
The 2008 Global Financial Crisis was caused by a rise and fall in housing prices, loose monetary policy by the Fed that fueled risky lending, and the collapse of major investment banks due to their leveraged positions. It led to a recession characterized by falling home values, high unemployment, declining manufacturing and automotive industries, and financial losses for colleges. However, some developing countries were less impacted. The crisis also contributed to a shift in global power towards countries like China, India, and Brazil. Governments responded by reducing interest rates, increasing spending on infrastructure, lowering taxes and boosting transfer payments, and establishing funds to provide companies with access to capital.
The document summarizes the subprime mortgage crisis. It explains that subprime mortgages are high-interest loans given to borrowers with poor credit who could not qualify for standard mortgages. Many borrowers took out adjustable-rate subprime mortgages when housing prices were rising, expecting to refinance before rates increased. However, when housing prices fell, borrowers could not refinance and began defaulting, leading to a wave of foreclosures. This crisis significantly impacted the US and global economies, with major financial institutions writing off billions of dollars in losses. Governments responded with bailouts and efforts to assist homeowners and regulate derivatives.
The World Bank provides various types of lending operations and guarantees to support poverty alleviation and sustainable development. Its top contributors are the USA, Japan, Germany, UK, and France. Investment lending finances infrastructure and includes specific investment loans, sector investment and maintenance loans, and emergency recovery loans. Adjustment lending supports policy reforms through structural adjustment loans, sector adjustment loans, and debt reduction loans. World Bank guarantees include project-based partial risk guarantees, project-based partial credit guarantees, and policy-based guarantees to facilitate private sector financing.
Long Term Capital Management (LTCM) was a hedge fund founded in 1994 by John Meriwether that utilized quantitative models and leverage to profit from convergence trades. While initially successful, LTCM lost billions in 1998 during the Russian financial crisis as markets became volatile and liquidity dried up. To prevent systemic risk, the Federal Reserve orchestrated an emergency bailout. The crisis showed that highly leveraged positions are vulnerable to shifts in market liquidity and correlations between assets. Key lessons include incorporating liquidity as a risk factor, stress testing models, and relying more on judgment than purely quantitative analysis.
The document summarizes the global financial crisis that began in 2007 and its causes and consequences. It was triggered by losses in the US subprime mortgage market and the bankruptcy of Lehman Brothers. The crisis spread due to securitization of risky mortgages and moral hazard. This led to job losses, bankruptcies, declining consumption and aversion to risk. Governments responded with bank bailouts and stimulus spending while regulators aimed to reduce conflicts of interest and better oversee financial markets.
The document summarizes the collapse of Lehman Brothers investment bank in September 2008. It provides background on Lehman Brothers and explains the key reasons for its bankruptcy, including losses from subprime mortgage loans, a lack of confidence from other banks, and the refusal of potential acquirers like Barclays. The CEO's pride and refusal to sell at a lower price were also factors. The fall of Lehman Brothers and Merrill Lynch's acquisition by Bank of America shocked markets and increased uncertainty about other financial institutions like AIG and Washington Mutual. The events also increased risk perceptions in Indian markets.
The Global Financial Crisis was caused by expanded lending to subprime borrowers in the US housing market who struggled to repay their loans, spreading losses to financial institutions globally through interconnected credit markets. The crisis impacted developing countries through lower exports due to reduced demand from industrial nations and less foreign investment as risk appetite declined. Central banks addressed the crisis through liquidity injections and government rescue plans, while major banks consolidated to avoid bankruptcy.
This is a recording of a revision webinar exploring some of the causes of financial crises in developed and emerging market countries. There are many different types of crises ranging from currency/external debt crises to disturbances in banking systems.
The document summarizes key events and causes of the 2007-2009 financial crisis. It notes that housing prices increased sharply until 2005 but then leveled off and declined, default and foreclosure rates increased in 2006, and major investment banks collapsed in 2008. The crisis was sparked by the decline in US housing prices, which reduced the value of mortgage-backed securities and threatened the solvency of financial institutions due to leverage. The crisis put the US and world economies into a deep recession, the largest since the Great Depression.
The subprime mortgage crisis was triggered by rising mortgage delinquencies and foreclosures in the United States starting in 2007. Many subprime mortgages were issued with little or no down payment to borrowers with low incomes, assets, and credit histories. When housing prices declined and mortgage rates rose, mortgage defaults soared, causing losses for financial firms holding mortgage-backed securities. This led to a tightening of credit worldwide and government bailouts of major banks and financial institutions.
The document discusses debt markets in Pakistan, including an overview of bond markets globally and their importance for economic development. It then provides details on the bond market in Pakistan, including the types of bonds issued by the government and private sector as well as the current small size of the domestic bond market. Challenges and opportunities for expanding the bond market in Pakistan are also examined.
The document provides a summary of the key causes and events of the global financial crisis that began in 2007-2008. It discusses how a decline in lending standards and rising housing prices in the US encouraged many homeowners to take on difficult mortgages. Once housing prices dropped and interest rates rose, defaults and foreclosures increased dramatically. US banks had repackaged risky mortgages into complex financial products that were distributed globally, spreading risk throughout the financial system and making the effects of the crisis global in scale. The document outlines several major events such as the failures of Bear Stearns and Lehman Brothers that accelerated the crisis.
The document discusses various factors that contributed to the 2008 financial crisis, including:
- Congress pushing homeownership too aggressively
- The Fed keeping interest rates too low
- Predatory lenders taking advantage of unqualified home buyers
- Home buyers taking on mortgages they couldn't afford
- Lax banking regulations under the White House
- Finance executives selling risky products for profit without understanding the risks
- Rating agencies underestimating the risks of mortgage-backed securities
This document provides an overview of the 2008 subprime mortgage crisis in the United States. It defines subprime loans as high-risk loans given to borrowers with poor credit. In the early 2000s, low interest rates and rising home prices fueled increased subprime lending. However, starting in 2006, subprime borrowers began defaulting on mortgages as home prices declined. These mortgage defaults led to losses in mortgage-backed securities, damaging global financial markets and resulting in a global recession in 2008. India was less impacted than other countries due to regulations on its financial system and restrictions on risky lending practices.
This document discusses the subprime mortgage crisis in the United States. It defines subprime mortgages as loans given to borrowers with poor credit ratings. The crisis coincided with the 2007-2009 recession as home prices declined sharply, many subprime borrowers defaulted on their loans, and financial institutions incurred major losses. This led to effects like a decline in GDP, rising unemployment, a drop in real estate prices, and the bankruptcy of large banks. Government remedies included quantitative easing, credit easing, expanded deposit insurance, capital injections for banks, and programs to avoid home foreclosures.
The document provides an overview of the subprime lending crisis and its consequences. It discusses how subprime lending involved higher risk borrowers and loans, which led to high default rates. This bursting of the US housing bubble and subprime mortgage crisis had widespread effects, causing the bankruptcies of lending institutions like New Century Financial in 2007 and Lehman Brothers in 2008, government takeovers of Fannie Mae and Freddie Mac, and billions in write-downs and losses for banks like HSBC, Merrill Lynch, and AIG, leading to the largest government bailouts.
The document discusses the subprime crisis. It defines subprime loans as high-risk loans given to borrowers who do not qualify for standard interest rates due to factors like income, down payment size, credit history, or employment status. The key causes of the crisis were securitization of subprime mortgages, adjustable rate mortgages, inaccurate credit ratings, and excessive risk taking by government sponsored enterprises. The impacts included losses for financial institutions in 2007-2008 that wiped out capital and led to the failure of Lehman Brothers. Years later, there were still over a million homes in foreclosure.
The document discusses the subprime mortgage crisis and analyzes interest as one of its key causes. It provides background on subprime loans and mortgage-backed securities. It then examines perspectives on interest from classical economics and Islamic finance, noting how Islam prohibits interest. The passage argues that low interest rates initially led to unsustainable subprime lending, and that interest-based deals encouraged risky behavior. Ultimately, it concludes that interest was a major driver of the crisis and that Islamic finance could serve as a more stable alternative due to its prohibition of interest and uncertainty.
The document discusses the benefits of exercise for mental health. Regular physical activity can help reduce anxiety and depression and improve mood and cognitive functioning. Exercise causes chemical changes in the brain that may help protect against mental illness and improve symptoms for those who already suffer from conditions like anxiety and depression.
The document discusses the benefits of exercise for mental health. Regular physical activity can help reduce anxiety and depression and improve mood and cognitive functioning. Exercise causes chemical changes in the brain that may help protect against mental illness and improve symptoms.
I made this when I was in third year of my college.
This was my attempt to describe the subprime mortgage crisis that lead to the financial meltdown in 2008.
The document discusses the benefits of exercise for mental health. Regular physical activity can help reduce anxiety and depression and improve mood and cognitive function. Exercise causes chemical changes in the brain that may help protect against mental illness and improve symptoms for those who already suffer from conditions like anxiety and depression.
This document provides an overview of the 2008 subprime mortgage crisis in the United States. It defines subprime loans as high-risk loans given to borrowers with poor credit. In the early 2000s, low interest rates and rising home prices fueled increased subprime lending. However, starting in 2006, subprime borrowers began defaulting on mortgages as home prices declined. These mortgage defaults led to losses in mortgage-backed securities, hurting financial institutions and triggering a global recession. India was less impacted than other countries due to regulations that limited exposure of its financial system to global markets.
The document summarizes the 2008 subprime crisis. It describes the crisis as starting in the U.S. mortgage industry by approving borrowers for mortgages they could not afford. This led to a rise in bank failures after 2008, including the acquisition of Washington Mutual by JP Morgan Chase. The crisis occurred as mortgage brokers and banks provided risky subprime loans that were repackaged and sold as bonds to investors by investment banks, which spread the financial risks globally. Richard Fuld, the final CEO of Lehman Brothers, oversaw the bankruptcy of the firm in 2008, marking the largest bankruptcy filing in U.S. history at that point.
Global Financial Crisis and its Impact on the Indian EconomyShradha Diwan
The document discusses the global financial crisis that began in 2007 and its impact on the Indian economy. It provides background on the crisis, explaining that a loss of confidence in securitized mortgages in the US triggered a financial crisis that spread globally. It then examines four key ways India was affected: reduced global liquidity impacted foreign investment and lending; decreased consumer demand abroad hurt Indian exports; the IT industry saw clients like Lehman Brothers collapse; and foreign investment withdrawals led stock markets and the rupee to decline sharply. The response of Indian authorities and prospects for the economy are also assessed.
International Relations Conflict Theoriesbrennanikns
The document defines conflict as an opposition of needs, values, and interests that can occur internally within a person or externally between two or more individuals, groups, or organizations. Conflict in political terms can refer to wars, revolutions, or other struggles that may involve force. The document goes on to discuss different types of conflict including personal conflict and nation-to-nation conflict. It also summarizes three main theories of international relations: liberal theory which believes human nature is good, realist theory which views the world as chaotic with states focused on survival, and radical theory which sees conflict arising from uneven distribution of resources between the rich and poor.
The Subprime Crisis-almost a Modern FairytaleThomas Wicki
The document tells a story about the subprime crisis as a modern fairytale. It describes a money making system where subprime lenders gave out loans, which were then sold to wholesalers and investment banks. These banks bundled the loans into investment products with high credit ratings. This system profited many parties as long as housing prices increased. However, when prices started falling, it destroyed the system and caused widespread losses. The crisis was worse than expected and shook the foundations of the economy.
The document discusses the subprime crisis, including the key players and events that led to the housing bubble and its bursting, which triggered a global financial crisis. It then outlines the impact on various countries and financial institutions, as well as the various bailout measures taken by governments around the world to stabilize their economies and financial systems in response to the crisis.
India was impacted by the global financial crisis through three main channels: the financial channel as overseas financing dried up, the real channel as exports declined with falling demand from the US, Europe and Middle East, and the confidence channel as corporates withdrew investment. The crisis highlighted India's growing integration into the global economy through increased trade, financial flows, and corporate reliance on external financing. India responded with monetary easing and fiscal stimulus packages to contain the crisis initially, then shifted to recovery and inflation management policies as growth rebounded. However, risks remain from high global liquidity, the European debt crisis, and potential for another asset bubble.
A credit default swap is a contract where a buyer pays a seller a periodic fee in exchange for a payout if a third party defaults on its debt obligations. For example, if party A lends to party B, party A can buy a CDS from party C to insure against party B's default. If party B defaults, party C pays party A instead of party B. CDS contracts transfer credit risk from one party to another and resemble insurance policies against borrower defaults.
Global Financial Crisis of 2008-09 & it’s ImpactDipesh Sans
The document summarizes the global financial crisis of 2008-2009 and its impact. It discusses the causes of the crisis such as the boom and bust in the housing market and risky lending practices. It then describes the effects worldwide including the collapse of the US financial sector and declines in global trade and GDP. It also outlines impacts in India like falls in the stock market, exports, and GDP growth as well as increases in unemployment. Finally, it concludes with an overview of the crisis's effects on both the Indian and world economies.
THE HOUSING MARKETGreat RecessionMortgage collapseHigh i.docxrtodd33
THE HOUSING MARKET
Great Recession
Mortgage collapse
High interest rates
Restricted supply of new homes
https://roselawgroupreporter.com/2015/05/freddie-mac-housing-markets-continue-to-get-better-ariz-among-most-improved/
In the course of the most recent decade, no occasion has impacted the housing market more than the worldwide financial downturn that started in December 2007. Amid this seismic financial move, alluded to as the Great Recession, many, if not the vast majority, confronted a bunch of uncommon challenges. The subprime contract crumple prompted numerous individuals losing their homes and monetary stagnation. Americans confronted money related debacle as the estimation of their homes dropped well underneath the sum they had obtained and subprime loan fees spiked. Month to month contract installments relatively multiplied in a few sections of the nation. Much of the time, borrowers were in reality better defaulting on their home loan advances instead of paying more for a home that had dropped sharply in esteem. Thus, home building saw a huge decrease, bringing about a confined supply of new homes for a consistently developing populace. The absence of supply and the expanded request saw the land condition transform into a vender's market. More individuals were currently pursuing less homes, which expanded home costs.
1
HOUSING PRICE INDEX
HOUSING PRICE INDEX
2011 THE AVERAGE PRICE WAS DOWN TO JUST 300K US DOLLARS
American housing market reform
Today’s average housing price index
The housing price index averaged around 378k us dollars in 2007, by 2011 the average price was down to just 300k us dollars.
During 2011, under the Obama administration, the American housing market reform was created. The housing market reform was created to increase the number of jobs for US citizens and help restore the housing market. Today, the average housing price index is back up to just over 400k.
2
Household income
2007 average household income
decrease in average household income
By 2011 the average household income dropped down to a little over 53k year
2016 average household income
The average household income for families were up before the market crashed. The decrease in average household income played it’s part in the housing market crash. The average household income in the US was around 58k per year in 2007, by 2011 the average household income dropped down to a little over 53k per year. In just two years (2013) the average household income was up to 55k a year and today the average household income is up to 59k per year.
3
Household income
Here is a depiction of the Household Income from 2007 to current.
4
3908339448398144017940544409094127541640420054237058149560765568354245534015333155214543985723059039
Year
Income
unemployment
Unemployment rate
Affects of unemployment to housing market
Current unemployment rate
In 2007 the unemployment rate was over 4 percent but due to the affects of the market crashing and.
The document provides an overview of the causes of the 2008 financial crisis. It discusses risky government policies in the late 1990s and 2000s that encouraged homeownership and an unregulated derivatives market. These policies contributed to a housing bubble fueled by subprime lending and excessive risk-taking by financial institutions. When home prices peaked in 2006 and then declined, foreclosures increased which weakened banks and led to a broader economic crisis. The government implemented TARP and other programs to bail out financial institutions and stabilize the economy.
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.
The document summarizes the key factors that led to the 2008 financial crisis and outlines steps taken by the US government to address it. Specifically, it discusses how stagnant real wage growth, rising consumer debt, the housing bubble bursting, overuse of complex financial instruments like credit default swaps, and lack of oversight combined to undermine the economy. The government responded with a $700 billion bailout package aimed at stabilizing banks, boosting liquidity, and removing toxic assets from balance sheets.
The document summarizes the key factors that led to the 2008 financial crisis and outlines steps taken by the US government to address it. Specifically, it discusses how stagnant real wage growth, rising consumer debt, the housing bubble bursting, overuse of risky financial instruments like credit default swaps, and lack of oversight combined to undermine the economy. The government responded with a $700 billion bailout package aimed at stabilizing banks, boosting liquidity, and removing toxic assets from balance sheets.
Understanding the Current US RecessionShiva Pillai
The housing bubble and subsequent financial crisis were caused by excessive lending and risky investments in mortgage-backed securities. Low interest rates fueled a rise in subprime lending. When housing prices peaked and interest rates rose, many homeowners defaulted on mortgages. This led to a collapse in the value of mortgage-backed securities, freezing credit markets and damaging financial institutions and the broader economy. Government intervention was needed to stabilize markets and assist homeowners. While recovery will take time, lessons from the crisis could help build a more stable financial system going forward.
The document discusses the subprime mortgage crisis of the late 2000s. It defines prime and subprime loans, and explains that the crisis occurred when the housing bubble burst after many subprime borrowers defaulted on adjustable rate mortgages. This was caused by an overheated market where home prices increased too fast. When home prices started declining, foreclosure rates rose which further drove prices down. This created losses for many financial institutions and impacted the global economy. The US government responded by trying to help homeowners renegotiate loans to avoid foreclosure and providing liquidity to struggling financial institutions.
The document discusses the subprime mortgage crisis that began in the early 2000s and led to a recession. It describes how many Americans took out subprime mortgages that they could not afford once rates adjusted higher. This caused a surge in foreclosures that hurt the housing and construction industries. While the crisis began in 2001, its effects were not fully felt until 2007 when home prices declined significantly and the economy entered a recession. Recent investments in housing developments suggest a possible recovery, but many are still dealing with the financial impacts of the crisis years later.
The document discusses reasons why now is a good time to buy a home, despite recent housing market issues. It notes favorable mortgage rates, a large selection of homes on the market, and signs that the worst of the credit crunch is over. Additionally, job and income growth are fueling pent-up housing demand, and historically homeowners who stay in their homes long-term do well building wealth. While sales and construction numbers are down from peaks, price declines have slowed and some regions are seeing price increases again. Overall the analysis suggests more recovery in 2008.
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 Housing Bubble and Financial Crisis: A New ViewKevin Erdmann
1) The housing bubble was driven by supply, not credit, as Americans built new homes to reduce costs by moving to more affordable areas.
2) After 2008, housing markets were driven by a credit shock as low-tier home prices collapsed, rather than by addressing the underlying supply issues.
3) Regulators incorrectly treated the crisis as a credit problem rather than a supply problem, cutting home prices, devastating homeowners' equity, and locking many buyers out of the market long-term.
The United States experienced a subprime mortgage crisis between 2007-2010 that contributed to an economic recession. Subprime loans are high-risk loans given to borrowers with poor credit, while prime loans have lower rates and are for those with good credit. The crisis was triggered by a large drop in home prices after a housing bubble burst, leading to many subprime borrowers defaulting on their mortgages and facing foreclosure as the bubble collapsed due to unsustainable rising prices.
The document discusses how the U.S. economy will likely enter a recession in 2007 due to weakness in the housing market. It notes that the recent recovery was fueled by an unprecedented run-up in house prices, but prices are now declining which will negatively impact construction, home sales, and consumption. As home prices decline, homeowners will have less ability to borrow against their home equity to fund spending. The recession will result in slowing job growth and rising unemployment over the course of 2007. Key economic indicators like GDP, housing starts, and existing home sales are predicted to decline sharply in 2007.
The document discusses how the U.S. economy will likely enter a recession in 2007 due to weakness in the housing market. It notes that the recent recovery was fueled by an unprecedented run-up in house prices, but prices are now declining which will negatively impact housing investment, consumption, and job growth. It predicts GDP will decline 0.7% in 2007, 1.2 million jobs will be lost, and the unemployment rate will rise to 6.3%. It also expects inflation to remain around 2.5% and the Federal Reserve to lower interest rates to combat the economic slowdown.
The document discusses how the U.S. economy will likely fall into recession in 2007 due to weakness in the housing market. The housing boom, fueled by a speculative bubble, drove economic growth over the last several years but house prices are now declining. As home equity declines and adjustable rate mortgages reset higher, consumption will drop sharply as homeowners can no longer borrow against inflated home values. The housing sector, which accounts for over 6% of GDP, will likely contract by at least 40% as well. Together, plummeting housing investment and consumption will push the economy into recession in 2007, with job losses and slowing wage growth.
The subprime crisis began in 2006 and was caused by high default rates on risky subprime mortgages and adjustable rate mortgages made to borrowers with low incomes or poor credit histories. Between 2000-2005, low interest rates and rising home prices led many lenders to issue risky subprime loans. However, in 2005 interest rates rose and home prices fell, leaving many subprime borrowers unable to afford their loans. This caused defaults and foreclosures to spike, damaging financial institutions and the broader economy.
The document discusses the subprime mortgage crisis and its effects. It provides background on subprime loans and why they are issued. It then explains the key events that triggered the crisis from 2000-2008, including low interest rates, rising home prices, and many subprime borrowers defaulting as rates increased. This led to a collapse of the mortgage-backed securities market and global recession. India was also impacted through declines in exports, stock markets, FDI, and other economic indicators from 2007-2009. However, India was less affected due to stronger banking regulations and less reliance on subprime-style lending.
1) The document discusses the history of the mortgage industry and how loose lending practices in the 2000s led to the 2008 financial crisis. Subprime loans and other risky products contributed to rising defaults.
2) Government intervention was needed to stabilize the housing market and financial system. Reforms were implemented to tighten regulations and protect consumers.
3) However, the author warns that signs like increasing subprime auto loans and loosening credit standards could lay the foundation for another housing bubble if not addressed. A wave of loan resets from programs like HAMP could also increase defaults.
What Lessons Can New Investors Learn from Newman Leech’s Success?Newman Leech
Newman Leech's success in the real estate industry is based on key lessons and principles, offering practical advice for new investors and serving as a blueprint for building a successful career.
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Fabular Frames and the Four Ratio ProblemMajid Iqbal
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Stunning art in the small multiples format brings out the spatiotemporal nature of societal transitions, against backdrop issues such as energy, housing, waste, farmland and forest. In each frame we see hopeful and frightful interplays between spending and saving. Problems emerge when one of the two parts of the existential anaglyph rapidly shrinks like Arctic ice, as factors cross thresholds. Ecological wealth and intergenerational equity areFour at stake. Not enough spending could mean economic stress, social unrest and political conflict. Not enough saving and there will be climate breakdown and ‘bankruptcy’. So where does speculative design start and the gambling and betting end? Behind each fabular frame is a four ratio problem. Each ratio reflects the level of sacrifice and self-restraint a society is willing to accept, against promises of prosperity and freedom. Some values seem to stabilise a frame while others cause collapse. Get the ratios right and we can have it all. Get them wrong and things get more desperate.
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2. What are subprime mortgages?What are subprime mortgages?
Typically, those who qualify for the most idealTypically, those who qualify for the most ideal
mortgages with the best interest rates are those withmortgages with the best interest rates are those with
good credit scores and minimal debt.good credit scores and minimal debt.
A subprime mortgage is a type of loan granted toA subprime mortgage is a type of loan granted to
individuals with poor credit histories (typicallyindividuals with poor credit histories (typically
below 600), who would not be able to qualify forbelow 600), who would not be able to qualify for
conventional mortgages.conventional mortgages.
Subprime mortgages charge interest rates that areSubprime mortgages charge interest rates that are
above the typical interest rate because of the riskabove the typical interest rate because of the risk
that is involved on the part of the lender.that is involved on the part of the lender.
3. What are subprime mortgages?What are subprime mortgages?
There are several different types of subprimeThere are several different types of subprime
mortgages, but the most common is themortgages, but the most common is the
adjustable rate mortgage (ARM).adjustable rate mortgage (ARM).
ARMs can be misleading to subprimeARMs can be misleading to subprime
borrowers because they initially pay a lowerborrowers because they initially pay a lower
interest rate. After the given period of time,interest rate. After the given period of time,
their mortgages are set to a much higher rate.their mortgages are set to a much higher rate.
Therefore, their mortgage paymentsTherefore, their mortgage payments
increase dramatically.increase dramatically.
4. What happens to your mortgage?What happens to your mortgage?
A mortgage is a “stream of cash flows”A mortgage is a “stream of cash flows”
Mortgage originators consist of banks, mortgage bankersMortgage originators consist of banks, mortgage bankers
and mortgage brokers.and mortgage brokers.
The mortgage broker connects the family with the lender.The mortgage broker connects the family with the lender.
The broker collects commission. The family is then able toThe broker collects commission. The family is then able to
buy the house that they went.buy the house that they went.
After the mortgage is sold, it is usually put in a group withAfter the mortgage is sold, it is usually put in a group with
other mortgages into a mortgage backed security, or MBS.other mortgages into a mortgage backed security, or MBS.
The riskier portions of these securities are made intoThe riskier portions of these securities are made into
collateralized debt obligations, or CDOs. These are thecollateralized debt obligations, or CDOs. These are the
portion of the MBS that other investors do not want.portion of the MBS that other investors do not want.
Private sector commercial and investment banks developedPrivate sector commercial and investment banks developed
new ways of securing subprime mortgages: by packagingnew ways of securing subprime mortgages: by packaging
them into CDOs and then dividing the cash flows intothem into CDOs and then dividing the cash flows into
different "tranches" to appeal to different classes of investorsdifferent "tranches" to appeal to different classes of investors
with different tolerances for risk.with different tolerances for risk.
5. Leading up to the crisisLeading up to the crisis
Dean Baker, an analyst, identified the housingDean Baker, an analyst, identified the housing
bubble in August 2002 that led up to the crisis. Hebubble in August 2002 that led up to the crisis. He
said that between 1953 and 1995 the prices ofsaid that between 1953 and 1995 the prices of
houses reflected inflation, after 1995 however thehouses reflected inflation, after 1995 however the
price increases in houses were well over inflation.price increases in houses were well over inflation.
He predicted that a crisis would result from this butHe predicted that a crisis would result from this but
no one in the Federal Reserve would listen to him.no one in the Federal Reserve would listen to him.
Baker’s analysis was confirmed by economist RobertBaker’s analysis was confirmed by economist Robert
Shiller who had proven that the real price of housesShiller who had proven that the real price of houses
had not changed from 1895 to 1995.had not changed from 1895 to 1995.
6. How was the housing bubble identified?How was the housing bubble identified?
According to Shiller, the real price of houses was relativelyAccording to Shiller, the real price of houses was relatively
flat from 1890 to 1997, but since 1998, they have climbed 6flat from 1890 to 1997, but since 1998, they have climbed 6
percent per year in the aggregate.percent per year in the aggregate.
He determined this by looking at housing price data heHe determined this by looking at housing price data he
obtained from multiple sourcesobtained from multiple sources
1890–1934 from Grebler, Blank, and Winnick (1956)1890–1934 from Grebler, Blank, and Winnick (1956)
1953–1975 from the home-purchase component of the CPI-U1953–1975 from the home-purchase component of the CPI-U
1975–1987 from the1975–1987 from the Office of Federal Housing EnterpriseOffice of Federal Housing Enterprise
OversightOversight
1987–2005 from the Case-Shiller-Weiss index1987–2005 from the Case-Shiller-Weiss index
To fill in the gap, Shiller constructs an index of house pricesTo fill in the gap, Shiller constructs an index of house prices
from 1934 to 1953 by compiling data on the sales price offrom 1934 to 1953 by compiling data on the sales price of
houses from five major cities based on newspaperhouses from five major cities based on newspaper
advertisements.advertisements.
7.
8. Case-Shiller IndexCase-Shiller Index
The Home Prices line you see in the followingThe Home Prices line you see in the following
graph comes from the Case-Shiller Pricegraph comes from the Case-Shiller Price
Index. This Index is based on data collectedIndex. This Index is based on data collected
on repeat sales of single family homes. It wason repeat sales of single family homes. It was
developed by economists Karl Case, Robertdeveloped by economists Karl Case, Robert
Shiller, and Allan Weiss. The index isShiller, and Allan Weiss. The index is
normalized to have a value of 100 in the firstnormalized to have a value of 100 in the first
quarter of 2000.quarter of 2000.
9.
10. How did the housing bubble develop?How did the housing bubble develop?
The housing bubble grew alongside the stock bubble in theThe housing bubble grew alongside the stock bubble in the
mid 1990s. The stock bubble increased the wealth of people,mid 1990s. The stock bubble increased the wealth of people,
which led them to spend money on consumption includingwhich led them to spend money on consumption including
bigger and better houses.bigger and better houses.
The increased demand led house prices to rise. Then theThe increased demand led house prices to rise. Then the
stock bubble burst, which only caused the housing bubble tostock bubble burst, which only caused the housing bubble to
grow more. This is because people lost faith in the stockgrow more. This is because people lost faith in the stock
market and thought investing in a home would be a muchmarket and thought investing in a home would be a much
safer alternative.safer alternative.
Also going on at this time was the slow recovery from theAlso going on at this time was the slow recovery from the
2001 recession. This led the Federal Reserve Board to cut2001 recession. This led the Federal Reserve Board to cut
interest rates in an effort to stimulate the economy. Fixed-rateinterest rates in an effort to stimulate the economy. Fixed-rate
mortgages, as well as other interest rates hit 50 year lows.mortgages, as well as other interest rates hit 50 year lows.
This was a huge incentive to buy a home.This was a huge incentive to buy a home.
11. Some statistics of the housing bubbleSome statistics of the housing bubble
The USA home ownership rate increased from 64% inThe USA home ownership rate increased from 64% in
1994 (about where it had been since 1980) to an all-1994 (about where it had been since 1980) to an all-
time high of 69.2% in 2004.time high of 69.2% in 2004.
Between 1997 and 2006, the price of the typicalBetween 1997 and 2006, the price of the typical
American house increased by 124%American house increased by 124%
In 2006 the national median home price was 4.6 timesIn 2006 the national median home price was 4.6 times
the national median household income.the national median household income.
The housing bubble resulted in quite a fewThe housing bubble resulted in quite a few
homeowners refinancing their homes at lower interesthomeowners refinancing their homes at lower interest
rates, or financing consumer spending by taking outrates, or financing consumer spending by taking out
second mortgages secured by the price appreciation.second mortgages secured by the price appreciation.
USA household debt as a percentage of annualUSA household debt as a percentage of annual
disposable personal income was 127% at the end ofdisposable personal income was 127% at the end of
2007, versus 77% in 1990.2007, versus 77% in 1990.
12. "The financial market crisis that erupted in
August 2007 has developed into the largest
financial shock since the Great Depression,
inflicting heavy damage on markets and
institutions at the core of the financial system."
International Monetary Fund, World Economic
Outlook, April 2008
And then the bubble burst…
13. The Subprime Mortgage Crisis Explained:The Subprime Mortgage Crisis Explained:
Up until 2006, the housing market in the UnitedUp until 2006, the housing market in the United
States was flourishing due to the fact that it was soStates was flourishing due to the fact that it was so
easy to get a home loan.easy to get a home loan.
Individuals were taking on subprime mortgages,Individuals were taking on subprime mortgages,
with the expectations that the price of their homewith the expectations that the price of their home
would continue to rise and that they would be ablewould continue to rise and that they would be able
to refinance their home before the higher interestto refinance their home before the higher interest
rates were to go into effect. 2005 was the peak of therates were to go into effect. 2005 was the peak of the
subprime boom. At this time, 1 in 5 mortgages wassubprime boom. At this time, 1 in 5 mortgages was
subprime.subprime.
However, the housing bubble burst and housingHowever, the housing bubble burst and housing
prices had reached their peak. They were now on aprices had reached their peak. They were now on a
decline.decline.
14. At this point, many who had taken on theseAt this point, many who had taken on these
subprime mortgages and their interest ratessubprime mortgages and their interest rates
were beginning to “reset” to the higher rates,were beginning to “reset” to the higher rates,
making their monthly mortgage paymentsmaking their monthly mortgage payments
much higher than before.much higher than before.
People then began to sell their homes – butPeople then began to sell their homes – but
there was a problem to doing this. Since thethere was a problem to doing this. Since the
price of homes had severely decreased, theyprice of homes had severely decreased, they
did not have enough money after selling todid not have enough money after selling to
cover the amount of the mortgage.cover the amount of the mortgage.
The Subprime Mortgage Crisis Explained:The Subprime Mortgage Crisis Explained:
15. If a person could not sell their home, thisIf a person could not sell their home, this
ultimately left the homeowner with oneultimately left the homeowner with one
option, and that was to DEFAULT.option, and that was to DEFAULT.
When a home is defaulted, this is the first stepWhen a home is defaulted, this is the first step
towards foreclosure.towards foreclosure.
After the notice of default, there is aAfter the notice of default, there is a
reinstatement period before the home is putreinstatement period before the home is put
up for auction by the bank.up for auction by the bank.
If the defaulted loan isn’t taken care of in aIf the defaulted loan isn’t taken care of in a
given amount of time, the bank resumesgiven amount of time, the bank resumes
responsibility of the home and is put up forresponsibility of the home and is put up for
auction.auction.
The Subprime Mortgage Crisis Explained:The Subprime Mortgage Crisis Explained:
16. However, when put in an auction, the bank usuallyHowever, when put in an auction, the bank usually
sells the home at a price that is much lower thansells the home at a price that is much lower than
what it is worth. The amount that they receive in thiswhat it is worth. The amount that they receive in this
process gets put towards the borrower’s loan, butprocess gets put towards the borrower’s loan, but
the borrower still has to account for the differencethe borrower still has to account for the difference
that they owe towards the loan.that they owe towards the loan.
The process of auctioning off these houses creates aThe process of auctioning off these houses creates a
increase in supply of homes in the market, whichincrease in supply of homes in the market, which
will decrease the home prices.will decrease the home prices.
The Subprime Mortgage Crisis Explained:The Subprime Mortgage Crisis Explained:
17. One of the major problems that came out of this crisis wasOne of the major problems that came out of this crisis was
that:that: BillionsBillions of dollars were lost in mortgage backedof dollars were lost in mortgage backed
securities.securities.
What is a mortgage backed security? “Once a bank hasWhat is a mortgage backed security? “Once a bank has
made thousands of mortgage loans, they often package up allmade thousands of mortgage loans, they often package up all
the loans together and sell them to investors as bonds.”the loans together and sell them to investors as bonds.”
It was believed that these bonds were very safe investmentsIt was believed that these bonds were very safe investments
due to the fact that home prices were on the rise. If andue to the fact that home prices were on the rise. If an
individual was unable to pay the mortgage, it was thoughtindividual was unable to pay the mortgage, it was thought
that the homes would easily just be seized and sold.that the homes would easily just be seized and sold.
Investors continued to buy these mortgage backed securitiesInvestors continued to buy these mortgage backed securities
because they continued to make a great amount of money.because they continued to make a great amount of money.
However, real estate prices began to fall, and theHowever, real estate prices began to fall, and the
homeowners began to default their mortgages. This “safe”homeowners began to default their mortgages. This “safe”
investment was turning out to be one that was of great riskinvestment was turning out to be one that was of great risk
and therefore, costing investors billions of dollars.and therefore, costing investors billions of dollars.
The Subprime Mortgage Crisis Explained:The Subprime Mortgage Crisis Explained:
18. The ratings of mortgage backed securitiesThe ratings of mortgage backed securities
began to decline, to AA or even lower. Thisbegan to decline, to AA or even lower. This
was a clear indicator of how these securitieswas a clear indicator of how these securities
were thought of as a risky investment.were thought of as a risky investment.
The downgraded mortgage bonds wereThe downgraded mortgage bonds were
suddenly worth much less. A bank who wassuddenly worth much less. A bank who was
initially holding $100 billion in assets foundinitially holding $100 billion in assets found
that these assets could now be sold for muchthat these assets could now be sold for much
less, assuming they could even find someoneless, assuming they could even find someone
to buy them. No investors wanted to take onto buy them. No investors wanted to take on
this risk.this risk.
The Subprime Mortgage Crisis Explained:The Subprime Mortgage Crisis Explained:
19.
20. Major banks suffered from huge losses.Major banks suffered from huge losses.
Lehman Brothers went out of business.Lehman Brothers went out of business.
Merrill Lynch had to sell itself to Bank of America forMerrill Lynch had to sell itself to Bank of America for
a fraction of its former valuea fraction of its former value
Countrywide Financial Corporation, the biggest U.S.Countrywide Financial Corporation, the biggest U.S.
mortgage lender, eventually gets taken over bymortgage lender, eventually gets taken over by
Bank of America.Bank of America.
The Federal Reserve began guaranteeing loans toThe Federal Reserve began guaranteeing loans to
Bear Stearns and other banks to prevent an all-outBear Stearns and other banks to prevent an all-out
financial failure.financial failure.
Mortgage defaults led subsequently to the collapseMortgage defaults led subsequently to the collapse
and government rescue of Fannie Mae and Freddieand government rescue of Fannie Mae and Freddie
Mac.Mac.
Impacts of the Subprime MortgageImpacts of the Subprime Mortgage
Crisis:Crisis:
21. The AftermathThe Aftermath
There was a total of 2.2 millionThere was a total of 2.2 million
foreclosures in 2007, up 75% from theforeclosures in 2007, up 75% from the
roughly 1.26 million RealtyTrac reportedroughly 1.26 million RealtyTrac reported
in 2006. RealtyTrac said 1% of all USin 2006. RealtyTrac said 1% of all US
households were in 'some stage ofhouseholds were in 'some stage of
foreclosure' in 2007, up from 0.58% inforeclosure' in 2007, up from 0.58% in
2006.2006.
By the end of 2008, home prices hadBy the end of 2008, home prices had
dropped 20% from their 2006 peak.dropped 20% from their 2006 peak.
22. Responses to the CrisisResponses to the Crisis
Many programs have been enacted and legislation passed toMany programs have been enacted and legislation passed to
help those who have been hit the hardest by the crisis. Somehelp those who have been hit the hardest by the crisis. Some
examples include the Emergency Economic Stabilization Actexamples include the Emergency Economic Stabilization Act
of 2008 and the Homeowners Affordability and Stability Plan.of 2008 and the Homeowners Affordability and Stability Plan.
Former President Bill Clinton and former Federal ReserveFormer President Bill Clinton and former Federal Reserve
Chairman Alan Greenspan indicated they did not properlyChairman Alan Greenspan indicated they did not properly
regulate derivatives, including credit default swaps. A billregulate derivatives, including credit default swaps. A bill
called the Derivatives Markets Transparency andcalled the Derivatives Markets Transparency and
Accountability Act of 2009 has been proposed to furtherAccountability Act of 2009 has been proposed to further
regulate the CDS market. This bill would provide theregulate the CDS market. This bill would provide the
authority to suspend CDS trading under certain conditions.authority to suspend CDS trading under certain conditions.
23. Where do we go from here?Where do we go from here?
Five main topics are important to consider when discussing solutions to theFive main topics are important to consider when discussing solutions to the
crises: liquidity, solvency, economic stimulus, homeowner assistance, andcrises: liquidity, solvency, economic stimulus, homeowner assistance, and
regulation.regulation.
Liquidity: Central banks have expanded their lending and money supplies, toLiquidity: Central banks have expanded their lending and money supplies, to
offset the decline in lending by private institutions and investors.offset the decline in lending by private institutions and investors.
Solvency: Some financial institutions are facing risks regarding their solvency, orSolvency: Some financial institutions are facing risks regarding their solvency, or
ability to pay their obligations. Alternatives involve restructuring throughability to pay their obligations. Alternatives involve restructuring through
bankruptcy, bondholder haircuts, or government bailoutsbankruptcy, bondholder haircuts, or government bailouts
Economic stimulus: Governments have increased spending or cut taxes to offsetEconomic stimulus: Governments have increased spending or cut taxes to offset
declines in consumer spending and business investment.declines in consumer spending and business investment.
Homeowner assistance: Banks are adjusting the terms of mortgage loans to avoidHomeowner assistance: Banks are adjusting the terms of mortgage loans to avoid
foreclosure, with the goal of maximizing cash payments. Governments areforeclosure, with the goal of maximizing cash payments. Governments are
offering financial incentives for lenders to assist borrowers.offering financial incentives for lenders to assist borrowers.
Regulation: rules designed help stabilize the financial system (such as regulatingRegulation: rules designed help stabilize the financial system (such as regulating
derivatives)derivatives)
Discussions on theses topics are central to deciding what actions should be takenDiscussions on theses topics are central to deciding what actions should be taken
with regard to monetary policy, legislation, and potential programs.with regard to monetary policy, legislation, and potential programs.
24. Sources:Sources:
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