Global Economic CrisisGlobal Economic CrisisWhat happened?What happened?

Last half of 1990s: Last half of 1990s: unprecedented growth unprecedented growth and prosperityand prosperity

2000: dot com bubble 2000: dot com bubble burstburst

2001: 9/11 terrorist 2001: 9/11 terrorist attacks; stock market attacks; stock market dropped; unemployment dropped; unemployment rose; fear country was on rose; fear country was on brink of full-blown brink of full-blown recessionrecession

By end of 2002: Fed By end of 2002: Fed decreased interest decreased interest rates from 6.5% to rates from 6.5% to 1.25%1.25%

Economy awash in Economy awash in money; subprime money; subprime mortgage loans came mortgage loans came into playinto play

Home prices rose as Home prices rose as demand skyrocketeddemand skyrocketed

If it sounds too good to be If it sounds too good to be true, it probably is.true, it probably is.

Banks and investment Banks and investment houses invented complex houses invented complex ways to resell the ways to resell the mortgages as securitiesmortgages as securities

No government regulationNo government regulation Fin. Institutions did not Fin. Institutions did not

maintain reserves in case maintain reserves in case mortgage-backed funds mortgage-backed funds lost valuelost value

2006: housing prices 2006: housing prices peaked; prices fellpeaked; prices fell

Subprime borrowers Subprime borrowers owed more than homes owed more than homes worth; unable to refinance worth; unable to refinance to lower paymentsto lower payments

Foreclosures climbedForeclosures climbed Fin. Institutions feel Fin. Institutions feel

pressurepressure July 2008: Bear Stearns July 2008: Bear Stearns

forced to merge with forced to merge with JPMorganJPMorgan

A billion here and a billion A billion here and a billion there, pretty soon you’re there, pretty soon you’re

talking real money.talking real money. July 2008: Fannie Mae, July 2008: Fannie Mae,

Freddie Mac, Lehman Freddie Mac, Lehman Brothers, file for Brothers, file for bankruptcybankruptcy

Sept 2008: Fed lends Sept 2008: Fed lends $85b to AIG, for 80% $85b to AIG, for 80% stakestake

Sept. 29, 2008: Dow falls Sept. 29, 2008: Dow falls 700 points; House fails to 700 points; House fails to pass bailout of other pass bailout of other financial institutionsfinancial institutions

Oct 12, 2008 CEOs of Oct 12, 2008 CEOs of nine major banks called nine major banks called to Treasury Dept. Federal to Treasury Dept. Federal Gov’t to become major Gov’t to become major stockholder in exchange stockholder in exchange for $1.25b taxpayer for $1.25b taxpayer moneymoney

Oct. 2008: 6.5% rate of Oct. 2008: 6.5% rate of unemployment versus unemployment versus 4.3% March 20074.3% March 2007

Another shoe dropsAnother shoe drops

April 2009 Chrysler files April 2009 Chrysler files for BK; purchased by Fiatfor BK; purchased by Fiat

June 2009: GM files for June 2009: GM files for bankruptcybankruptcy

Fed pours $50b into GM Fed pours $50b into GM reorganization for 60% reorganization for 60% stakestake

GM sheds Pontiac, GM sheds Pontiac, Saturn, Hummer, and Saturn, Hummer, and Saab brandsSaab brands

Plants, assembly lines, Plants, assembly lines, distribution warehouses distribution warehouses closeclose

GM stock falls to 75 GM stock falls to 75 cents/share and is cents/share and is replaced on Dow replaced on Dow Jones index by Cisco Jones index by Cisco SystemsSystems

Three of largest BKs Three of largest BKs in history occurred in in history occurred in 2008-09: GM, 2008-09: GM, Lehman Brothers, Lehman Brothers, Washington MutualWashington Mutual

Where we are todayWhere we are today

July 2009: 9.4% U.S. July 2009: 9.4% U.S. unemployment rate; unemployment rate; 11.9% California11.9% California

83 bank failures YTD83 bank failures YTD Dow up 8.75% YTD; Dow up 8.75% YTD;

NASDAQ up 28.64%; NASDAQ up 28.64%; S&P up 13.91%S&P up 13.91%

Cash for Clunkers results Cash for Clunkers results in sales of 690,114 in sales of 690,114 vehicles at cost to vehicles at cost to taxpayers of $2.88btaxpayers of $2.88b

Fed provides $300m for Fed provides $300m for Cash for AppliancesCash for Appliances

Fed about $2.1Trillion in Fed about $2.1Trillion in debt, and growingdebt, and growing

AIG has repaid $85b of AIG has repaid $85b of Fed loan, with interestFed loan, with interest

Goldman Sachs has Goldman Sachs has repaid $1.1b Fed loan, repaid $1.1b Fed loan, with interestwith interest

Small signs of recovery Small signs of recovery appearing worldwide appearing worldwide

CA Bankruptcy FilingsCA Bankruptcy Filings

Filings in 2007: 72,615Filings in 2007: 72,615 Filings in 2008: 133,223Filings in 2008: 133,223 Filings in 2009: 205,705Filings in 2009: 205,705 95% of bankruptcy filings were 95% of bankruptcy filings were

consumers, not businessesconsumers, not businesses O.C. Bankruptcy filings Jan-Mar 2010: 4,292, an O.C. Bankruptcy filings Jan-Mar 2010: 4,292, an

increase of 46.8 percent more than same period increase of 46.8 percent more than same period last yearlast year