Financial Crisis

Question 1

What happened to House prices before the crash

Answer 1

They appreicated by 10% between 2004 and 2006

Question 2

What was the homeowner ship rate in the US before the crash

Answer 2

In 2007 it was 68%

Question 3

What did Greenspan say

Answer 3

In 2005 he said that it was unlikely that there was a housing bubble in the US because of the size and diversity of it.

Question 4

How much was estimated to be lost from US economy

Answer 4

In 2007 it was predicted $150 billion would be lost and that it would not turn into a financial crisis.

Question 5

What is a boom

Answer 5

When there is an increase in a certain area before it crashes, ie houses.

Question 6

What have the ohter financial crisis been caused by

Answer 6

The housing bubble bursting

Question 7

What did the US do to interest rates

Answer 7

Cut them from 5.25% to 3% to encourage spending and investment

Question 8

Outline what happened with Lehman Brothers

Answer 8

Barcalays treied to take them over but it collapsed at the final moment. They filed for bankruptcy and were the largest firm in any industry ever to do so. Lost confidence in the financial institutions in which they had borrowed from. Caused financial panic. US government decided against bailing them out.

Question 9

What e housing bubble to burst

Answer 9

Those with subprime mortages unable to pay them meaning they defaulted

Question 10

What is a sub prime mortage

Answer 10

A mortage given to those seen as risky, poor credit rating, making it easier for them to own a home, didn’t check income and low interest rates.

Question 11

What happened in 2007

Answer 11

Housing closure activity increased by 79% meaning that 1.3 households were seized.

Question 12

What is a credit crunch?

Answer 12

When there is a lack of credit/money in the system, meaning that banks don’t want to trade with one another.

Question 13

What banks collapsed

Answer 13

Lehman brothers, Northern Rock in the UK, Delta in Belgiuim, AIG was saved by the US government, too big to collapse.

Question 14

What is a CDO

Answer 14

Collaterized debt obligation - banks sold this off to institutions to make more money, pools of mortages which had credit ratings.

Question 15

What was the default rate?

Answer 15

2006 1%
2007 4%
Only needed to be 8% for the market to collapse.

Question 16

What was the US response

Answer 16

Lower interest rates, put more liquid into the market to avoid a deflationairy spiral. Purchase government and risky assests from banks

Question 17

What is TARP

Answer 17

Enabled over 700 banks to stay open in the US, providing them with key finances, in 2008 $238 billion was used by 2013 99% of it was paid back.

Question 18

What laws were passed

Answer 18

Emergency Economic Stablization act was passed which provided $787 billion worth of government spending . Capital injectors into the market to encourage growth.

Homeowners affordabilty and stability plan was introduced which enabled homeowners to rebalance their mortages.

Question 19

What did Obama do

Answer 19

Increased federal spending from $3 trillion to $3.5 trillion maintaining it to 3.7 in 2015.

Question 20

What happened to the economy

Answer 20

Economic stablizers kicked in meaning that government spending increased when there was a rise in unemployment as it meant tax revenues fell.

Question 21

What else was passed

Answer 21

Wall street reofrm and consumer protection act - regulate the market, increase transparency, improve acountabily and end tax payer funded bailouts. Faced oppoistion from republicans and wall street who tried to water it down and make loopholes in it.

Question 22

How much did it cost to bailout AIG

Answer 22

$182 billion but it returned with $205 billion meaning a profit was made.

Question 23

How many jobs were lost

Answer 23

9 million

Question 24

What happened to economic growth when the crash hit

Answer 24

Decreased by 8.4%

Question 25

Why was the US respone a success

Answer 25

Acted quickly and made sure there was enough liquidity in the system so banks oculd lend, proactive with government intervention and automatic stabilsers. Restoring confidence in the system,

Question 26

What is the timeline in Greece

Answer 26

December 2009 - Fitch downgrades Greece’s credit rating. Papendeau unveils unpopular plans. Riots break out

March 2010 - Selling off 10 year bonds is seen as a popular move.

April 2010 - Greek borrowing reaches a peak. EU leaders agree bailout package. Trigger $45 billion loans from IMF and Eu

May 2010 Greece needs an emergency loan of $110 billion to avoid financial meltdown

Question 27

What was Greece economic growth

Answer 27

2008 -0.3
2009 -4
2010 - 5
2011 - 7

Question 28

What is ironic about Greek repsonse to crisis

Answer 28

More debt was added to a debt crisis