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-Issue of sub-prime mortgage obligations

-Investment Banks (Lehman, Merrill, AIG) invest heavily in Mortgage Backed Securitys (MBSs)

-Ever increasing excess housing inventory

leads to

-Housing price decline

-Changes in ability to  re-finance

-Homeowner equity plummets.  Home owners owe more than homes are worth.  Variable Mortgage rates kick in.

Housing Crisis

Financial Crisis

-Bank issued mortgages default at much higher rate than anticipated

-MBSs lose significant value

resulting in

-Investment Bank losses in the billions

-Investment Bank capital declines dramatically

leads to

-Investment Bank Failure

Liquidity Crisis

-Significant Investment Bank losses

leads to

-Banks reluctant or unable to lend

resulting in

-Loss of liquidity in    markets

-Severe confidence crisis

-Extreme volatility in markets

-Government rescue plan created

The Perfect Storm: A Credit and Economic Crisis

Loss of $1.9 Trillion of investor retirement savings as of October 20081

1 Loss of a total $1.9 trillion in assets in the year between October 9, 2007 and October 9, 2008, according to the Center for Retirement  Research at Boston College.

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