7 the financial crisis of 2008 the shoe drops

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Unformatted text preview: kdown in financial system — spillover effects from one market into others • Banks highly leveraged; assets less liquid • Formal exchange trading replaced by over- the-counter markets — no margin for insolvency protection 1-40 1.7 The Financial Crisis of 2008 • The Shoe Drops • September 7, 2008: Fannie Mae and Freddie Mac put into conservatorship • Lehman Brothers and Merrill Lynch verged on bankruptcy • September 17: Government lends $85 billion to AIG • Money market panic freezes short-term financing market 1-41 1.7 The Financial Crisis of 2008 • Dodd-Frank Reform Act • Called for stricter rules for bank capital, liquidity, risk management • Mandated increased transparency • Clarified regulatory system • Volcker Rule: Limited banks’ ability to trade for own account 1-42 Figure 1.1 Short-Term LIBOR and Treasury-Bill Rates Figure and the TED Spread and 1-43 Figure 1.2 Cumulative Returns Cumulative returns on a $1 investment in the S&P 500 index 1-44 Figure 1.3 Case-Shiller Index of U.S. Housing Figure Prices Prices 1-45 1.8 Text Outline • Part One: Introduction to Financial Markets, Securities, and Trading Methods • Part Two: Modern Portfolio Theory • Part Three: Debt Securities • Part Four: Equity Security Analysis • Part Five: Derivative Markets • Part Six: Active Investment Management Strategies: Performance Evaluation, Global Investing, Taxes, and the Investment Process 1-46...
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