Hide Notes 

Slide 1: Fact or fiction, causes and indicators CK
Slide 2: A period of general and sustained economic decline CK
Slide 3: a stage of business cycle in which economic activity is in slow decline. A Recession usually follows a boom, and precedes a depression CK
Slide 4: CK
Slide 5: CK
Slide 6: CK
Slide 7: CK
Slide 8: CK
Slide 9: CK
Slide 10: Jan 11 - Bank of America buys Countrywide Financial for $4 billion in an all-stock deal. March 16 - JP Morgan Chase buys Bear Stearns. July 11 - IndyMac is 12th to be seized by the FDIC after depositors withdraw $1.3 billion in 11 days. July 13 - Fannie Mae and Freddie Mac are nationalized CK
Slide 11: September 15 – Investment bank Lehman Brothers files for Chapter 11 bankruptcy protection. – Rival Merrill Lynch agrees to be taken over by Bank of America. – The Dow Jones fell 504 points, the index’s worst since the 2001 terrorist attacks. September 16 - Insurer American International Group (AIG) is rescued by the federal government through an $85 billion loan package CK
Slide 12: September 21 - Goldman Sachs Group Inc. and Morgan Stanley become bank holding companies regulated by the Fed, essentially ending Wall Street's investment banking model. September 25 – Washington Mutual is seized by the FDIC, making it the largest U.S. bank failure, with $307 billion in assets. – JPMorgan Chase buys WaMu’s banking assets for $1.9 billion. CK
Slide 13: CK
Slide 14: Liquidity Crunch - A crisis that occurs when a business experiences a lack of cash required to grow the business, pay for day-to-day operations, or meet its debt obligations when they are due, causing it to default. Credit Crunch - a sudden reduction in the availability of loans (or "credit") or a sudden increase in the cost of obtaining a loan from the banks, and interest rates are high CK
Slide 15: Subprime Mortgage – offered/issued at a higher interest rate to persons who do not qualify for prime rate loans. With the following perks: – No down payment required – Credit Rating Ignored – Credit history Ignored – No proof of employment required – No proof of ability to pay mortgage (income) CK
Slide 16: HOW and WHY – Long term trend of rising house prices (so your purchase will increase in value) – Interest rates start of small but increase with time. – Mortgage Brokers • Competition for commissions • Did not actually lend any money CK
Slide 17: Next – Large number of subprime mortgages put together into a RBMS - Residential MortgageBacked – Security CK
Slide 18: Next – RBMS split into 4 parts each with a different rating, risk and return. CK
Slide 19: Next – as many as 150 of each part put into a CDO CK
Slide 20: Next – CDO rated and sold to large investors CK
Slide 21: CK
Slide 22: “When the United States Sneezes, the rest of world may well catch a cold” -By Rich Miller
Slide 23: CK
Slide 24: Biggest economy in the world Constitutes 27% of Global GDP World’s biggest debtor country Biggest Importer of Oil 27% in 2007
Slide 25: 700 Billion Bailout – To prevent the total collapse of U.S. economy and Wall Street – To restore confidence and stability – Money goes to the largest banks – Money comes from other countries but paid for ultimately by taxpayers CK 700,000,000,000,
Slide 26: Rich people got it good in this country ... Broke people are about to bailout rich people... It's welfare for the rich. -Wanda Sykes CK
Slide 27: You could buy 438 pounds of rice for every single person in Africa. 14 times the budget of Trinidad and Tobago (0809) It is more than $100 for every person in the world. $668,577 dollars for every Trinidadian and Tobagonian. You can buy a country - Denmark, Peru, Nepal, or Iceland CK
Slide 28: Cost to bring every delinquent mortgage to par: $11 billion Cost to restore every foreclosed home (2 years): $ 60 billion Just take three of the major Banks bonuses ‘07 – – – a. Goldman Sachs paid 30 billion b. Morgan Stanley paid 30.7 billion c. Lehman Brothers paid 10.9 billion CK
Slide 29: Nationalisation of some banks Fiscal Policy – Tax cuts/rebates – Establishment of new govt jobs – Unemployment insurance Monetary Policy – – – – – Reduce the reserve ratio Lower the federal funds rate Lower the discount rate Use its own reserve money to buy government bonds Changes in who can borrow CK
Slide 30: Market Continues to be volatile Stocks expected lower today because of sagging housing market Bush to give pep talk to anxious country G7 to meet on world financial crisis (Fri & Sat) CK