Week12+-+Subprime+Mortgate+Crises+%28for+your+in

Week12+-+Subprime+Mortgate+Crises+%28for+your+in - Subprime...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Subprime Mortgage Crisis --- Causes, Effects and Lessons The following presentation is based on the entries on Wikipedia, http://en.wikipedia.org/wiki/Subprime_mortgage_crisis , unless indicated otherwise.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Introduction 2 Data source: Wall Street Journal Data Centre
Background image of page 2
Introduction 3 CBOE Volatility Index 0 10 20 30 40 50 60 70 80 1/3/2007 4/5/2007 7/6/2007 10/6/2007 1/6/2008 4/7/2008 7/8/2008 10/8/2008 Date VIX Data source: Chicago Board Options Exchange
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Introduction 4 Spread of various borrowing rates over the yield of 1 month treasury bill The spread of various borrowing rate over T-bill rate -0.5 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 1/2/2007 3/2/2007 5/2/2007 7/2/2007 9/2/2007 11/2/2007 1/2/2008 3/2/2008 5/2/2008 7/2/2008 9/2/2008 Date Spread FFR CPR_NF1M CPR_F1M Data source: Federal Reserve Board (U.S.) Statistics Release
Background image of page 4
Introduction 5 Subprime Mortgage Crisis The subprime mortgage crisis is an ongoing financial crisis characterized by contracted liquidity in global credit markets and banking systems triggered by the failure of mortgage companies, investment firms and government sponsored enterprises which had invested heavily in subprime mortgages. Housing market bubble  decreased lending standard  securitization removes loans from lending institutions and spreads the risks Burst of housing market bubble mortgage delinquency and foreclosure losses, illiquidity, and failure in financial industry credit crunch for businesses --> reduced business investment --> increased unemployment --> weakened consumer confidence --> reduced consumption further dampens investment and economic growth and increases unemployment --> downward spiral cycle
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Introduction 6
Background image of page 6
Causes 7 Housing Boom Low interest rate since late 1990s Influx of foreign funds? Price Index 0.00 50.00 100.00 150.00 200.00 250.00 Jan-87 Jan-88 Dec-88 Dec-89 Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 House Price Index Data source: Standard & Poor’s
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Causes 8 Deteriorating Lending Standard Subprime lending is the practice of making loans to borrowers who do not qualify for market interest rates owing to various risk factors, such as income level, size of the down payment made, credit history, and employment status. The lending standard deteriorates due to the over-optimism of housing market. The U.S. mortgage market is estimated at $12 trillion as of August, 2008. U.S. household debt as a percentage of income rose to 130% during 2007,
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 08/21/2009 for the course FINS 3630 taught by Professor Yip during the Three '09 term at University of New South Wales.

Page1 / 24

Week12+-+Subprime+Mortgate+Crises+%28for+your+in - Subprime...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online