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SUB-PRIME CRISIS1

Presented To:Prof. S.K. Singh Presented By:Snehil Agrawal

Home OwnersInvestors

MortgageMoney

HousesInstitutionsPension FundsInsurance CompaniesSovereign FundsMutual Funds

Here Is How It Goes2Wall Street

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Federal ReserveTreasury Bills

AAA

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BUTOn September 11

Federal Reserve

1%

No Thanks4Allan Green Span

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SAFEOKAYRISKY10%7%4%SAFEOKAYRISKYSafe InvestorsBankersHedge Funds

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DefaultDefault

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No Down PaymentNo DocumentNo Proof Of Income

SUB PRIME MORTGAGE=

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No RepaymentBanks going BANKRUPT

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10Major banks suffered from huge losses Lehman Brothers went out of business

Merrill Lynch had to sell itself to Bank of America for a fraction of its former value

Countrywide Financial Corporation, the biggest U.S. mortgage lender, eventually gets taken over by Bank of America

The Federal Reserve began guaranteeing loans to Bear Stearns and other banks to prevent an all-out financial failure

Mortgage defaults led subsequently to the collapse and government rescue of Fannie Mae and Freddie Mac. Impacts of the Subprime Mortgage Crisis

11There was a total of 2.2 million foreclosures in 2007, up 75% from the roughly 1.26 million Realty Trac reported in 2006

RealtyTrac said 1% of all US households were in 'some stage of foreclosure' in 2007, up from 0.58% in 2006

By the end of 2008, home prices had dropped 20% from their 2006 peak.Impacts Continued

12Many programs have been enacted and legislation passed to help those who have been hit the hardest by the crisis. Example : The Emergency Economic Stabilization Act,2008 & The Homeowners Affordability and Stability Plan

Former President Bill Clinton and former Federal Reserve Chairman Alan Greenspan indicated they did not properly regulate derivatives, including credit default swaps

A bill called The Derivatives Markets Transparency and Accountability Act,2009 was proposed to further regulate the CDS market. This bill provided the authority to suspend CDS trading under certain conditions.

Responses of the Crisis

13Thank YouReferences :https://www.youtube.com/watch?v=bx_LWm6_6tAhttp://en.wikipedia.org/wiki/Financial_crisis_of_2http://en.wikipedia.org/wiki/Subprime_mortgage_crihttps://www.Slideshare.com