financial crisis-2008
DESCRIPTION
Financial Crisis explained in briefTRANSCRIPT
Created By:Parshwadeep Lahane
PARTNERS IN CRIMECustomers FED Mortgage
Brokers
Investment Banks
Investors
Credit Rating Agencies
Insurers
Modus Operandi• Bank would come out with schemes to give
loans to just anyone with the help of mortgage brokers
Principal + interest payable over long term
Loan Loan +Premium
Documents Documents
BANK(Lender)Mortgage
BrokerSubprime Customer
MBS for loan• Bank would package the loan into a security
and pass on to Investment banks
Principal + interest payable over long term
Loan Loan +Premium
Documents Documents
BANK(Lender)Mortgage
BrokerSubprime Customer
SIVInvestment
Bank
Loan +Premium
Documents converted to
Securities(MBS/ABS)
Off balance sheet entity
CDO• The investment banks will package these with
other securities and slice them into different categories of CDO
CDO
Securities(MBS)
Certification• Credit Rating agencies(CRA) would certify
these securities
Principal + interest payable over long term
Loan Loan +Premium
Documents Documents
BANK(Lender)Mortgage
BrokerSubprime Customer
SIVInvestment
Bank
Loan +Premium
Documents converted to
Securities(MBS/ABS)
Off balance sheet entity
CDO
CRA
Rating
Premium
Investors • Investment bank Structured Investment Vehicle(SIV)
will sell CDOs to the Investors across the globe
Principal + interest payable over long
term
Loan Loan +Premium
Documents Documents
BANK(Lender)Mortgage
BrokerSubprime Customer
SIVInvestment
Bank
Loan +Premium
Documents converted to
Securities(MBS/ABS)
Off balance sheet entity
CRA
Ratin
g
Prem
iumCDO
InvestorsLoan +
Premium
Insured
Principal + interest
payable over long term
Loan Loan +Premium
Documents Documents
BANK(Lender)Mortgage
BrokerSubprime Customer
SIVInvestment
Bank
Loan +Premium
Documents converted to
Securities(MBS/ABS)
Off balance sheet entity
CRA
Ratin
g
Prem
iumCDO
InvestorsLoan +
Premium
Insurer
Insu
ranc
e
Prem
ium
Other linkagesBank
MortgageBroker
Investment Bank
Insurer CRA
Mistakes• Wrong belief of housing prices always going up
• FED overlooked warnings
• Past data reference illusion
• High leveraging
• Miscalculated ratings fooled investors
• Appetite beyond capacity
• Slicing and dicing spread the risk but did not eliminate it
Result- Mortgage Market
Housing market nose dives
Sub prime borrower
Investors
Investment Banks
Nationalized Bankrupt
Credit Rating Agencies
Insurers
Saved by governmentfunding
Global Equity Markets
Lose 45% of wealth
Money market
Confidence in Market
Someone got lucky!
Alternate investment saw a surge
LEARNINGTHINK BEFORE YOU ACT
THANK YOU