Lecture21 - Announcements PS9 due Dec 7 Readings for next...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Announcements PS9 due Dec 7 Readings for next week (available on CTools) For Tuesday: CBO Estimated Effects of ARRA on Employment and Output For Thursday: CBO Long-term Budget Outlook News article of debt commission (tba, report delayed) The crisis • Underlying causes/preconditions – Financial markets – Housing • Triggering events – Freezing of credit market – Link to collapse of money multiplier • Policy response • Where we are now Preconditions for Boom and Proneness to Collapse • Low interest rates – Capital inflows from Asia • High saving rates • Bought dollar assets to peg exchange rates at “export friendly” levels – Federal Reserve looseness • Inflation targeting – fear of deflation • Aftermath of internet bubble • Financial innovation – “Originate and distribute” model – Proliferation of securities that spread risk but also led to lax lending standards – Move to financing with shorter maturity instruments
Background image of page 1

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

View Full DocumentRight Arrow Icon
2 Financial Products • “Structured products”, CDOs – Portfolios of mortgages and other loans, bonds, etc. – Sliced into “tranches” • More senior tranches sold around the globe • Junior “toxic” tranches often held by originating bank • “Credit default swaps” – Insurance against defaults – Could trade indices of portfolios of CDSs such as CDX “Shadow Banking System” • Traditional banking
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/31/2011 for the course ECON 402 taught by Professor House during the Fall '08 term at University of Michigan.

Page1 / 11

Lecture21 - Announcements PS9 due Dec 7 Readings for next...

This preview shows document pages 1 - 3. Sign up to view the full document.

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