Good Day! CA Content Standard:

DRAW A LINE SEPARATING TODAY & YESTERDAY1) Write: Date: 02/26/10, Topic: Housing Bubble2) On the next line, write “Opener #23” and then:

1) Plot your mood, reflect in 1 sent.2) Respond to the opener by writing at least 2 sentences about:Your opinions/thoughts OR/AND

Questions sparked by the clip OR/AND

Summary of the clip OR/AND

Other things going on in the news.Announcements: NoneIntro Music: Untitled

Agenda1) Book Checkout (10 points)2) Housing Bubble (no time for Marketplace, save for next Fri)

End Goal, you will be able to…1) How are the Fed and housing connected?

Reminder1) Study for Test that’s on Friday 3/5

Review1) Subprime: High risk

borrower2) Clinton: Wanted to

make home loans easier so more can have Am. Dream

3) 9/11: Fearing econ crisis, reduces fund rate target.

4) Liquidity: Can you use your money? When money is tied in loans, can’t lend out more.

5) Derivatives: Investments that earn money off other investments.

6) Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac): Launched by gov (meant to be private once launched) to buy loans (keep %) and then to sell as bonds (pay % to investor) so banks can lend more (poorer ppl get loans)

7) Mortgage Backed Securities (MBS): a kind of derivative, inst. like FM bundle up loans to sell as bonds.MBS spread risk, bank now safer, but economy exposed to wide/small risk

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SETUPMortgage:Loan agreement specifies how much you pay monthly.Securities: Any investment that buyers/sellers have agreed to terms.Bonds:A paper saying someone owes you money. On a regular basis they pay interest to you, at end of agreed time, they pay off principle.

Stage 1:Person 1: BorrowerPerson 2`: Chase Bank

Stage 2:Person 3: Financial Institution (Person 1 is safe: Fannie Mae)/Person 1 is risky: Goldman Sachs)Person 4: Investor

MATERIALS:Person 1: 10x$10X Person 2: 10x$1 and one piece of paper that will become the mortgagePerson 3: 10x$10X and 10 small pieces of paper that will become MBSPerson 4: 10x$10

STEPS1) Borrower borrows $100X, writes a mortgage saying how much he/she will pay back each month. Borrower gets bank's money, bank gets mortgage.2) Bank keeps mortgage and collects the routine mortgage payments.3) Bank sells mortgage to financial institution, gets money4) Financial institution all get together, collects all the mortgages, mixes them all up, and writes bonds that are mortgage backed5) Financial institution sells them to investors. Investors get the trickle down money from the loans. (Bonds are loans, so financial institution owes investors money)

MATERIALS:1-Banker: 5x$1002-Borrower: 10x$1 AND one piece of paper that will become the mortgage3-Financial Institution: 5x$100 AND 4 small pieces of paper that will become MBS4-Investor: 5x$100

STEPS1) Borrower borrows $400, WRITES a mortgage saying how much he/she will pay back each month. Borrower gets bank's money, bank gets mortgage. SIGN it and exchange mortgage for money.2) Bank keeps mortgage and collects the routine agreed to mortgage payments.3) Bank sells $400 mortgage to financial institution, bank gets $400 money (bank gets some % of the mortgage as a fee for servicing a loan they don’t own)4) Financial institution all get together, collects all the mortgages, mixes them all up, and writes bonds that are mortgage backed (bond=iou, so investors get mort. $)5) Financial institution sells them to investors. Investors get the trickle down money from the loans. (Bonds are loans, so financial institution owes investors money)

Derivatives Are Not BadThey spread the risk, which means the system is more stable, since a larger group of investor feel just a small part of the pain.

Derivatives free up money, and if banks are loaning to risky people, it’s creating more and more risk for everyone.

Work #23a, Title “Video: Housing Bubble”

1) Copy Source Title: Property Ladder + Misc

2…) Discuss questions on the board with a partner. Summarize your discussion (include their name at the end). Remember participation points are deducted if off task. 5 Reading/Film Qs Come From These Work SectionsTime Bookmark: 00:00

Notes #24a, Title: “Housing Bubble”

1) Collateralized Debt Obligation (CDO): When you package other kinds loans than homes like biz loans (MBS is a kind of CDO, CDO just broader term)

2) Goldman Sachs: Investment bank that packages many riskier MBS + CDO.

Notes #24a, Title: “Housing Bubble”

3) Credit Default Swap (CDS): An insurance policy that fin. Inst. can take, so in case the derived money stream dries up, insurance pay off bond.

4) AIG: America’s largest insurance company

Notes #24a, Title: “Housing Bubble”

5) Glass-Steagall Act of 1933: Banned banks from doing investments + insurance

6) Financial Services Modernization Act of 1999: Allowed banks, investment firms, and insurance companies to merge.

Traditionally, banks were to use savers money for restrict to two things: a) loans b) bonds. All foreclosed property had to be sold right away, no speculating.

If all services combined, if one service fails, it can bring the wider bank and all everyone down.

Notes #24a, Title: “Housing Notes” Housing Bubble Pops Summary:

9/11, Fed Reserve lower interest rates to prevent econ panic. Gov encourage loans to poorer ppl. Fannie, Freddie (and financial firms take riskiest) buy bank’s

loans to free them to loan more.

Cheap/easy loans AND house flippers fuel hot housing market

Invest. banks develop new ways to package loans into bonds. Even more, more riskier loans!

Work #24a, Title “Video: Test Review”

1) Copy Source Title: CNBC + NPR

3…) Discuss questions on the board with a partner. Summarize your discussion (include their name at the end). Remember participation points are deducted if off task. 5 Reading/Film Qs Come From These Work SectionsTime Bookmark: 00:00

Simulation Reboot:We are assuming 1 mo has passed ppl paid once

so far. As we rebookt, mo=wk, this will be mo 2.Career FairDefault role is intern, at which you will be paid

$1280/mo (8/hr). Roles available:Banker: $3200/mo* ($30/hr, 8 per class) training

req. Paid for coming 1 brunch/per week.Landlord: $2400/mo* ($20/hr, 6 per class) training

req. Paid for collecting rent once per week right at start of class.

Print out your stock accounts by Friday if extra money, to deposit in your bank. You can continue playing to do deposits once a month!

TEST PROCEDURES1) Bubble 4 last digits

of your student ID and write your name,

period. 2) Remember to copy

“Title” from the test on to your answer sheet.

3) Write your name on the test itself, but do not write anything else on it.

4) Leave Question 1 on answer sheet blank

BEST WISHES!

TEST DEBRIEF1) Make sure your test and scantron

have been turned in. No papers, pens, pencils may be out.

2) For security reasons, your test will be voided if any electronic devices or note taking is seen during the debrief. Thank you.

QUESTIONS ABOUT THE TEST?

MARKETPLACE 1) Prepare money AND items for Mr.

Chiang to check off for particpation.2) Update your balance sheet.

RICH PEOPLE SHOULD FEEL OBLIGATED TO PAY MORE IN MARKETPLACE. YOU CAN PAY IN CHECK.

Homework: 1) Study for Test 2 that’s on Fri, 3/5

Next Week’s Homework:1)

Workbook Check: If your name is called, drop off your workbook with Mr. Chiang (if requested, points lost if your workbook is not turned in)