bbvista pp economic and industry analysis

Financialinstabilityhypothesis

Info iconThis preview shows page 1. Sign up to view the full content.

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: property Teaser Rate first 2­years Margin of 5% or more Some loans were negative amortization. Financial Instability Hypothesis Financial Instability Hypothesis Stable Economic Times ­Investors take risk because they anticipate continued stability. Behavior leads to future instability: 3­stages of economic progress 3­stages of Economic Progress 3­stages of Economic Progress 1. Hedge Stage: Investors have $ from income to invest Invest safely ­ purchasing a home. 2.. 2 Speculative Stage: Riskier behavior Interest only borrowing with balloon payments. Investors expect: • Continued economic growth • Asset values not to decline • Interest rates to remain stable 3.. 3 Ponzi ­ Unit: Speculation phase Investors expect property values to continue rising. Negative amortization loans Key Economic Variables Key Economic Variables Gross domestic product Unemployment rates interest rates & inflation Budget Deficits Consumer sentiment Demand and supply shock Demand and supply shock Demand shock An event that affects demand for g...
View Full Document

This document was uploaded on 02/05/2014.

Ask a homework question - tutors are online