Transcript Global Economic Crisis What happened?

Global Economic Crisis
What happened?
 Last half of 1990s:
unprecedented growth
and prosperity
 2000: dot com bubble
burst
 2001: 9/11 terrorist
attacks; stock market
dropped; unemployment
rose; fear country was on
brink of full-blown
recession
 By end of 2002: Fed
decreased interest
rates from 6.5% to
1.25%
 Economy awash in
money; subprime
mortgage loans came
into play
 Home prices rose as
demand skyrocketed
If it sounds too good to be
true, it probably is.
 Banks and investment
houses invented complex
ways to resell the
mortgages as securities
 No government
regulation
 Fin. Institutions did not
maintain reserves in case
mortgage-backed funds
lost value
 2006: housing prices
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peaked; prices fell
Subprime borrowers
owed more than homes
worth; unable to refinance
to lower payments
Foreclosures climbed
Fin. Institutions feel
pressure
July 2008: Bear Stearns
forced to merge with
JPMorgan
A billion here and a billion
there, pretty soon you’re
talking real money.
 July 2008: Fannie Mae,
 Oct 12, 2008 CEOs of
Freddie Mac, Lehman
Brothers, file for
bankruptcy
 Sept 2008: Fed lends
$85b to AIG, for 80%
stake
 Sept. 29, 2008: Dow falls
700 points; House fails to
pass bailout of other
financial institutions
nine major banks called
to Treasury Dept. Federal
Gov’t to become major
stockholder in exchange
for $1.25b taxpayer
money
 Oct. 2008: 6.5% rate of
unemployment versus
4.3% March 2007
Another shoe drops
 April 2009 Chrysler files
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for BK; purchased by Fiat
June 2009: GM files for
bankruptcy
Fed pours $50b into GM
reorganization for 60%
stake
GM sheds Pontiac,
Saturn, Hummer, and
Saab brands
Plants, assembly lines,
distribution warehouses
close
 GM stock falls to 75
cents/share and is
replaced on Dow
Jones index by Cisco
Systems
 Three of largest BKs
in history occurred in
2008-09: GM,
Lehman Brothers,
Washington Mutual
Where we are today
 July 2009: 9.4% U.S.
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unemployment rate;
11.9% California
83 bank failures YTD
Dow up 8.75% YTD;
NASDAQ up 28.64%;
S&P up 13.91%
Cash for Clunkers results
in sales of 690,114
vehicles at cost to
taxpayers of $2.88b
Fed provides $300m for
Cash for Appliances
 Fed about $2.1Trillion in
debt, and growing
 AIG has repaid $85b of
Fed loan, with interest
 Goldman Sachs has
repaid $1.1b Fed loan,
with interest
 Small signs of recovery
appearing worldwide
CA Bankruptcy Filings
 Filings in 2007: 72,615
 Filings in 2008: 133,223
 Filings in 2009: 205,705
 95% of bankruptcy filings were
consumers, not businesses
 O.C. Bankruptcy filings Jan-Mar 2010: 4,292, an
increase of 46.8 percent more than same period
last year