sub prime II
-
Upload
anandkumardas -
Category
Documents
-
view
224 -
download
0
Transcript of sub prime II
8/7/2019 sub prime II
http://slidepdf.com/reader/full/sub-prime-ii 1/12
SUBPRIME
CRISIS
By .
Siddhartha Reddy
Pradeep Y.D.
Representing GROUP 4 IBS
8/7/2019 sub prime II
http://slidepdf.com/reader/full/sub-prime-ii 2/12
What is SUBPRIME?
� SUBPRIME MORTGAGE It is the mortgage for people withshaky credit, or specifically, people who is unlikely to be able to
pay the mortgage.
� Usually its given to those who are seeking money to finance
their houses.
When ?
� The dotcom bubble of 00-01 and 9/11 attacks drove the US
FEDERAL RESERVE to follow an ultra-easy monetary policy to
curb RECESSION.
ncrease in mortgage Y?
Boom and bust in Housing market
Low interest rates due to govt policies.
Rise in the housing price.
8/7/2019 sub prime II
http://slidepdf.com/reader/full/sub-prime-ii 3/12
8/7/2019 sub prime II
http://slidepdf.com/reader/full/sub-prime-ii 4/12
Y ? contd
High risk mortgage loan and lending/borrowing practice lending more and more loans to high risk borrowers and
immigrants.
� Government policies.
�
Policies of the central bank.Ultimately.Downturn & crash
� Interest rates started rising due to inflationary concern.
� The overbuilding of homes during the boom periodeventually led to a surplus inventory of homes causing homeprices to decline .
Causes .
� Offering NINJA loans.
� Payment options.
8/7/2019 sub prime II
http://slidepdf.com/reader/full/sub-prime-ii 5/12
Initiatives by govt
� The US govt to stimulate the economic growth enacted a
LAW on ECONOMIC STIMULUS PACKAGE of $168 billion
mainly in the form of tax rebates.
� was acquired by JP MORGAN CHASE with the
support of US FEDERAL RESERVE.
� was taken over by for $50 billion.
� The US FEDERAL RESERVE provided a loan of $85 billion to
the troubled insurance giant resulting in the US govt
acquiring a 79.9% stake in the company.� The US govt announced a $700 billion bail-out package to
stimulate the economy.
� Investment banks like and
converted themselves as regular banks.
8/7/2019 sub prime II
http://slidepdf.com/reader/full/sub-prime-ii 6/12
Mortgage-backed securities (MBS)
� Which derive their value from mortgagepayments and housing prices.
� Had enabled financial institutions andinvestors around the world to invest in theU.S. housing market.
� Major banks and financial institutions had
borrowed and invested heavily in MBS andreported losses of approximately US$435billion as of 17 July 2008.
8/7/2019 sub prime II
http://slidepdf.com/reader/full/sub-prime-ii 7/12
There are four primary types of risks..
� Credit risk - the risk that the homeowner orborrower will be unable or unwilling to pay backthe loan;
� Asset price risk - the risk that assets willdepreciate in value, resulting in financial losses.
� Liquidity risk - the risk that a business entity willbe unable to obtain financing.
� Counterparty risk - the risk that a party to acontract will be unable or unwilling to upholdtheir obligations.
8/7/2019 sub prime II
http://slidepdf.com/reader/full/sub-prime-ii 8/12
Impacts on INDIA� FOREX,equity and commodity markets.
� INDIAN RUPEE.
� INDIAN BOURSES ( came down f rom 21,200 in Jan 2008 to 7,700
level in Nov 2008)
ReasonThe foreign banks and hedge funds started unloading their holdingin INDIAN EQU I T I ES resulting in fall in the stock price and weakening the domestic currency.
�Hitting the IT enabled services since a majority of the Indian IT firmsderive 75% of their revenues from US.
� Manuf acturing sectors has to ramp up scale economies and improveproductivity and operational efficiency.
� Tourism sector could be badly affected. Now it is the time to
promote the aggressive health tourism.
8/7/2019 sub prime II
http://slidepdf.com/reader/full/sub-prime-ii 9/12
8/7/2019 sub prime II
http://slidepdf.com/reader/full/sub-prime-ii 10/12
PICTORIAL- CRISIS
8/7/2019 sub prime II
http://slidepdf.com/reader/full/sub-prime-ii 11/12
8/7/2019 sub prime II
http://slidepdf.com/reader/full/sub-prime-ii 12/12
WORST CRISIS SINCE 1930S
WITH NO END YET IN SIGHT