introduction to financial crisis 0.0 / 5 ? EconomicsaUniversityNone Created by: charlieCreated on: 03-05-16 15:33 Creating the bubble securitisation / secondary market / mortgage-backed securities / loosened standard of obtaining mortgage loan 1 of 8 securitisation lumping together mortgages, then slicing into different pieces appealing to different investors 2 of 8 secondary market Fannie Mae + Freddie Mac: promotes home ownership, easier to borrow money 3 of 8 mortgage backed securities investment banks buy mortgages, lump together and sell to investors at a higher IR 4 of 8 Bubble burst housing boom, FED's inc. funds rate, IR inc., asset (house) dec. / Mortgage backed securities value fell / default risk premium charge 5 of 8 Response from FED Dec. IR / Partial ownership 6 of 8 Role of oil prices inc. 2008 = IR inc / prices oil inc, costs inc, prices charged inc. 7 of 8 Problems from the crisis sharp unemployment inc / GDP growth dec / tougher loan standards by banks = CREDIT CRUNCH (no loans obtained) 8 of 8
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