{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Day+31-33+The+Credit+Crisis+8-12+Nov+2010

Day+31-33+The+Credit+Crisis+8-12+Nov+2010 - Click to edit...

Info iconThis preview shows pages 1–15. Sign up to view the full content.

View Full Document Right Arrow Icon

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

View Full Document Right Arrow Icon

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

View Full Document Right Arrow Icon

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

View Full Document Right Arrow Icon

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

View Full Document Right Arrow Icon

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

View Full Document Right Arrow Icon

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

View Full Document Right Arrow Icon

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

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Click to edit Master subtitle style 2/4/11 The Credit Crisis 1. A sociological view of markets 2. The political-cultural construction of the housing market 2/4/11 How do markets work? • Markets/Exchanges link buyers and sellers • Product and price information help buyers make decisions 2/4/11 • If your product is good, people will buy it, and you’ll do well • If your product is bad, people won’t buy it, and you’ll either go out of business or have to improve your product (competition & efficiency) 2/4/11 Assumptions • There is perfect information • Market actors act rationally 2/4/11 2/4/11 Enron, revisited • Shares of Enron are bought and sold on a special type of market called a stock exchange • “Consumer” information about the stock is: – available – accurate & reliable 2/4/11 Stock markets operate with bad information • Enron misrepresented the company’s finances to hide debt and operational risk • A community of interests went along with this, through collusion or negligence 2/4/11 The Credit Crisis • Two different markets: – The housing market – The market for securities based on home loans 2/4/11 Prospective homeowners … … go to local banks to get loans … … where, as part of the process, their credit is checked to assess their likely ability to repay the loan. 2/4/11 Local banks used to hold this loan … … on their balance sheets … ... counting on the homeowner to pay back the loan over time (mortgage payments), with interest. 2/4/11 SECURI TI ZATI ON Not any more. Now the bank packages up loans into special pur pose vehicles (SPVs) … … and sells them to investment banks on Wall Street for immediate cash. 2/4/11 In turn, Wall Street created exotic financial products like CDOs … … to sell to the global “giant pool of money”. 2/4/11 Transformation of Housing Market • Home loans used to be mostly locally held • By the end of the housing boom, loans were increasingly concentrated in the hands of very large financial firms – (this means that lenders were flipping loans off to Wall Street instead of Click to edit Master subtitle style 2/4/11 So, all well and good … Where do the problems begin to come in? 2/4/11...
View Full Document

{[ snackBarMessage ]}

Page1 / 32

Day+31-33+The+Credit+Crisis+8-12+Nov+2010 - Click to edit...

This preview shows document pages 1 - 15. Sign up to view the full document.

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