gryffindor productions

8/7/2019 GRYFFINDOR Productions

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GRYFFINDOR PRODUCTIONS

IN ASSOCIATION WITH

SUBPRIME

PRESENTS YOU

Subprime crisis,

a complete disasterDirected by-

ABHIRUP ROY CHOUDHURY

SUKANYA ROY CHOUDHURY

PALLABI GOSWAMITANAY PANDIT


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ING:

INVESTMENTBANKERS

SUBPRIME LENDERS

PRIVATEREALESTATE PURCHASER

RATING AGENCIES


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CO-STARRING

A lot of MoneySubprime

Mortgages

CDOs

MBS

InvestmentProducts

Increasing

Housing PricesDecreasing

Housing Prices


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TAKE -1


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Subprime lending (near-prime,non-prime, or second-chance

lending) in finance means making

loans that are in the riskiestcategory of consumer loans and are

typically sold in a separate market

from prime loans.


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WHAT EXACTLYIS

SUBPRIMEMORTGAGE

CRISIS ????


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The subprime mortgage crisis is an ongoing

real estate crisis and financial crisis triggered by

a dramatic rise in mortgage delinquencies and

foreclosures in the United States, with major

adverse consequences for banks and financial

markets around the globe.

Approximately 80% of U.S. mortgages issued inrecent years to subprime borrowers were

adjustable-rate mortgages.

An adjustable rate mortgage (ARM) is a

mortgage loan where the interest rate on the noteis periodically adjusted based on a variety of

indices. All adjustable rate mortgages have an

adjusting interest rate tied to an index.


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After U.S. house prices peaked in

mid-2006 and began their steep

decline thereafter, refinancing

became more difficult.

As adjustable-rate mortgages

began to reset at higher rates,

mortgage delinquencies soared.

Securities backed with subprimemortgages, widely held by

financial firms, lost most of their

value.

The result has been a large decline

in the capital of many banks andU.S. government sponsored

enterprises, tightening credit

around the world.


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BEHIND SUBPRIMECRISIS..


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THEHAPPYDAYS.


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US GOVERNMENT HAD

ENCOURAGED US

BANKS TO LEND MONEYTO PEOPLE TO

ENCOURAGE SPENDING

& INVESTING MAINLY

FOR THE PURPOSE OF

BUYING HOUSES


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THESE BANKS GRANTED

LOANS TO LARGE

NUMBER OF

BORROWERS DESPITE

HAVING LOWER INCOME

,UNSURE EMPLOYMENT

STATUS,UNSCRUPULOUS CREDIT

HISTORY, ETC.


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HUGE NUMBER OF

BORROWERS AVAILED

OF BANK CREDIT

WITHOUT EVALUATINGTHEIR REPAYMENT

CAPACITIES. THE

ECONOMY WAS FLUSH

WITH LIQUIDITY&STOCK MARKETS WERE

BOOMING.


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ASILENT STORMBREWED IN

INTERNATIONAL

FINANCIAL MARKETS

WITH ORIGINS IN THE

US HOUSING

MARKET, WHICH

WITNESSED AN

UNPRECEDENTED

BOOM SINCE 2001.


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THE BOOM WAS LEDBY RISING HOUSING

PRICES, LOW

INTEREST RATES &

AGGRAVATED BY

FINANCIAL

INNOVATIONVIZ.

MBS, CDO ANDCDS..

Mortgage-BackedSecurities(MBS),Collateralized Debt

Obligation(CDO),Asset Backed

Securities(ABS),etc.


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TAKE-3


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THEDISASTER COMMENCES..


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HOUSING PRICES IN

USABEGANTO DROP

IN 2006. RISINGINTERESTRATES &

FALLING HOUSING

PRICES LEDTO RISE

IN SUBPRIME

MORTGAGE

DELINQUENCIES.


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RESULT: THE HOUSING BUBBLE BURST IN

AUG 2006.


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THE SEQUENCE

OFEVENTS..


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TAKE-4


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IMPA

CTON

G

LOBALECONOMY


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Collapse ofFinancial

Institutions.

Severe Credit squeeze.

Consumer aversion to spending Job cuts and serious

unemployment problem

followed


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STEPS TAKENTO

FIGHTRECESSION


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Economic stimulusFederal Reserve and

central banks

Bank solvency and capitalreplenishment

Regulatory proposals andlong-term solutions


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