Lecture 12 Financial Crisis

Lecture 12 Financial Crisis - Financial Crisis History and...

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Click to edit Master subtitle style Financial Crisis – History and Implications
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Recent events n On July 11, the largest mortgage lender in the US collapsed. IndyMac Bank's assets were seized by federal regulators. n On September 7, 2008, Fannie Mae and Freddie Mac were placed into conservatorship (government control of private corporation). n September 13–14, Lehman Brothers declared bankruptcy after failing to find a buyer, Bank of America agreed to purchase Merrill Lynch, the insurance company AIG sought a bridge loan from the Federal Reserve, and a consortium of 10 banks created an emergency fund of at least $70 billion to deal with the effects of Lehman's closure. n On September 17, the Federal Reserve give AIG an $85 billion rescue package. The terms of the rescue package were that the Federal Reserve would receive an 80% public stake in the firm. n On September 25, JP Morgan Chase agreed to purchase the banking assets of Washington Mutual.
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Emergency legislation proposals ("the bailout") n The government intended to buy mortgage-backed securities from banks and investment houses to contain the financial crisis. Initial estimates of the cost of the Treasury bailout were in the range of $700 billion to $1 trillion. The crisis and the reform are both being called the greatest since the Great Depression. n On Sept. 29, stock market crashed on the news that the bailout plan was disapproved by the house of representatives. n On Oct. 1, stock market rebounded as the change in the bailout plan boosted the odds of passage. n There is no doubt that giving a handout to Wall Street lenders or foolish home buyers - as opposed to, say, laid-off factory workers - is deeply distasteful. At this point, though, the alternative may, in fact, be worse.
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The question n U.S. housing crash n With banks whispering sweet encouragement, people bought homes they couldn't afford, and now they are falling behind on their mortgages. n But the overwhelming majority of homeowners are still doing just fine. So how is it that a mess concentrated in one part of the mortgage business - subprime loans - has frozen the credit markets, sent stock markets gyrating, caused the collapse of
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This note was uploaded on 04/11/2009 for the course ACCT 410x taught by Professor Bonner during the Fall '06 term at USC.

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Lecture 12 Financial Crisis - Financial Crisis History and...

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