Econ310_Notes20101209

Econ310_Notes20101209 - T he Subprime Crisis (12/9/2010)...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
The Subprime Crisis (12/9/2010) Econ 310-004 Definitions recession – two consecutive quarters where GDP falls depression – recession where unemployment hits 10%; recession where GDP falls 10% fixed rate mortgage – interest rate stays the same adjustable rate mortgage (ARM) – interest rate fixed initially, then adjusts to market rate later subprime loan – loan to people with bad credit (credit score below 640) NINJA loan – no income, no job, no assets mortgage backed securities (MBS) – break up mortgage into tiny pieces, then bundle many mortgages together to diversify risk and sell them off Greenspan put – using monetary policy to prevent asset price deflation (i.e., reflate asset bubbles) mark to market accounting (fair value accounting) – valuing assets based on their current market price rather than their historical price credit default swap (CDS) – bet on whether a loan will be repaid; type of insurance that allows hedging Principles Our current financial crisis is called the Great Recession or the Subprime Crisis. According to the definitions, the recession began in December 2007 and ended in June 2009. Freddie Mac and Fannie Mae would implicitly guarantee mortgages from banks (moral
Background image of page 1

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

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 4

Econ310_Notes20101209 - T he Subprime Crisis (12/9/2010)...

This preview shows document pages 1 - 2. Sign up to view the full document.

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