Financial Crisis Flashcards
What happened to House prices before the crash
They appreicated by 10% between 2004 and 2006
What was the homeowner ship rate in the US before the crash
In 2007 it was 68%
What did Greenspan say
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.
How much was estimated to be lost from US economy
In 2007 it was predicted $150 billion would be lost and that it would not turn into a financial crisis.
What is a boom
When there is an increase in a certain area before it crashes, ie houses.
What have the ohter financial crisis been caused by
The housing bubble bursting
What did the US do to interest rates
Cut them from 5.25% to 3% to encourage spending and investment
Outline what happened with Lehman Brothers
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.
What e housing bubble to burst
Those with subprime mortages unable to pay them meaning they defaulted
What is a sub prime mortage
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.
What happened in 2007
Housing closure activity increased by 79% meaning that 1.3 households were seized.
What is a credit crunch?
When there is a lack of credit/money in the system, meaning that banks don’t want to trade with one another.
What banks collapsed
Lehman brothers, Northern Rock in the UK, Delta in Belgiuim, AIG was saved by the US government, too big to collapse.
What is a CDO
Collaterized debt obligation - banks sold this off to institutions to make more money, pools of mortages which had credit ratings.
What was the default rate?
2006 1%
2007 4%
Only needed to be 8% for the market to collapse.
What was the US response
Lower interest rates, put more liquid into the market to avoid a deflationairy spiral. Purchase government and risky assests from banks
What is TARP
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.
What laws were passed
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.
What did Obama do
Increased federal spending from $3 trillion to $3.5 trillion maintaining it to 3.7 in 2015.
What happened to the economy
Economic stablizers kicked in meaning that government spending increased when there was a rise in unemployment as it meant tax revenues fell.
What else was passed
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.
How much did it cost to bailout AIG
$182 billion but it returned with $205 billion meaning a profit was made.
How many jobs were lost
9 million
What happened to economic growth when the crash hit
Decreased by 8.4%
Why was the US respone a success
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,
What is the timeline in Greece
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
What was Greece economic growth
2008 -0.3
2009 -4
2010 - 5
2011 - 7
What is ironic about Greek repsonse to crisis
More debt was added to a debt crisis
