1. DRAW A LINE SEPARATING TODAY & YESTERDAY 1) Write: Date: 02/24/10 , Topic: Housing 2) On the next line, write “ Opener #21 ” and then: 1) Plot your mood, reflect in 1 sent . 2) Write down: Dow % Change , NASDAQ % Change , and your current stock % 3) Respond to the opener by writing at least 2 sentences Notebooks not yet graded , please pick up, drop off again at on Thursday. One last time.

3. Agenda 1) Book Checkout (10 points) 2) Federal Reserve 3) Housing End Goal, you will be able to… 1) How are the Fed and housing connected? Reminder 1) Study notebook for definite quiz

5. Review : 1) Americans buy things not on how much money they have, but how much they can borrow cheaply. 2) If there is more money “out there” then interest rates drop (cheap loans) 3) If there is less money “out there” then interest rates increase (pricier loans)

6. Review: How Bank Makes Profits 1) Loan Interest Rate: 6% Bank: Profit Margin Saving Interest Rate: 0.2%

7. Notes #20a , Title: “ Federal Reserve ” 1) Federal Reserve : Gov regulatory agency that controls US money supply ( monetary policy ). Fed Board serve 14 yrs to protect from politics. Led by Chairman Ben Bernanke . Federal Reserve called “the Fed” or the “banker’s bank.”

8. Federal Reserve System 1) US Gov Needs Money, Issues US Bonds (iou) Investors buy bonds Federal Reserve can BUY bonds from investors (open market) Investors get “new” money from Federal Reserve for the investors' bonds More money in the economy

9. Federal Reserve System 1) US Gov Needs Money, Issues US Bonds (iou) Investors buy bonds Federal Reserve can SELL bonds from investors (open market) Investors buys more bonds, gives money over to Federal Reserve Less money in the economy

11. US Bureau of Engraving and Printing prints money for the Federal Reserve.

12. Federal Reserve Bank Letter/Number Boston A New York B 2 Philadelphia C 3 Cleveland D 4 Richmond E 5 Atlanta F 6 Chicago G 7 St Louis H 8 Minneapolis I 9 Kansas City J 10 Dallas K 11 San Francisco L 12

13. Most of the Feds money these days is just electronically created.

14. Fed is indep. specifically so it won’t just print money, it uses more delicate tools

17. Fed Independence : a) 7 openings, 14 year terms , picked by the President, confirmed by the Senate b) 1 of the 7 picked to be Chairman for 4 years by the Pres, confirmed by Senate: Chairman Ben Bernanke c) Politicians have pressure to create short term boost in election years, Fed fights for stable growth

18. Alan Greenspan : Appointed 1987 Former Chairman

19. Ben Bernanke : Appointed 2006 Current Chairman

20. Notes #20a , Title: “ Federal Reserve ” 2) Economy Growing Too Fast (inflation): Too many ppl want to buy things, prices go up ( inflation ). High prices get biz too excited, and too much is produced. Biz then face losses, leading to recession.

21. Notes #20a , Title: “ Federal Reserve ” 3) Slowing Economy (recession): People have less money OR fear bad times ahead, no one wants to buy things, prices go down. Jobs lost as less is produced ( unemployment ).

22. Notes #20a , Title: “ Federal Reserve ” 4) Economy Growing Too Fast (inflation): Reduce money, make it more expensive to borrow. Less money supply increases price of borrowing/higher interest rates (banks increase interest rates to attract more money to lend out) 5) Slowing Economy (recession): Increase money, make it easier to borrow. More money available (banks can give lower interest rates, since extra money)

23. Work #20a , “ Federal Reserve Debate ” 1) Read the 2 sides, choose 1 side, and write which you choose and explain why . 2) Then write down what your partner thinks ( include their name at the end ). 1 2 3 4 5 CON: Fed should help the economy during a recession (jobs) 1) What’s the point of stable money value, if no one has a job? 2) The Fed can act more quickly and powerfully than Congress. PRO: Fed should just focus on stable money (prevent inflation) 1) Stable money is the backbone to any economy, the Fed should focus on this alone. 2)Too attractive for gov to have Fed just print money

24. Notes #20b , Title: “ Federal Reserve ” 6) 3 Tools of the Federal Reserve : i) Change banks Reserve Requirements : % of money banks must hold on to, can’t loan out ($ it keeps at the Fed). ii) Change the Discount Rate : Interest rate Fed charges banks for short term loans. 0.50% (disc rate always higher than Fed Fund Rate) iii) Sell US Bonds (bonds previously bought) OR buy US Bonds (with “new” money).

25. Federal Reserve Tools 6) Federal Reserve uses 3 tools to increase money supply Banks less needy for money, lower savings rates Banks lower loan rates, since saving rates are lower People buy more since loans are more cheaper Fighting recession

26. Federal Reserve Tools 6) Federal Reserve uses 3 tools to reduce money supply Banks more desperate for money, raise savings rates Banks increase loan rates to cover higher saving rates People buy less since loans are more expensive Fighting inflation

27. Notes #21a , Title: “ Federal Reserve ” 1) Federal Funds Rate Target : Funds rate is the interest rate banks loan to each other. All other interest rates follow this. Fed can’t force private interest rates, but they use the 3 tools to try to pressure banks to hit target. Currently: 0.25% UK ver: London Interbank Offered Rate LIBOR

28. Notes #21a , Title: “ Federal Reserve ” 2) Federal Open Market Committee (FOMC) : Federal Reserve Committee of 12 : 7 Fed Board members and 5 of the 12 district bank presidents work with Bernanke to make monetary decisions.

30. If the USA just printed money to speed things up, inflation could get out of control.

34. Work #21a , Title “ Partner Questions ” Read and then respond to these questions with a partner ( include their name at the end ) : Changing the Daily Reserve Requirement Federal reserve sets daily percentage of money must be kept at the Fed , and rest can be lent out as loans . Banks will keep only what the Fed reserve says it has to (NO profits on reserve money, res req approx: 15%). 1) Lowering to 10% will fight inflation or unemployment?

35. Notes #21a , Title: “ Federal Reserve Notes ” Fractional Banking: You put money in bank, bank hold Reserve, lend rest. Borrower 1 puts money in his/her bank, bank hold Resv, lend rest Borrower 2puts money in his/her bank, bank hold Resv, lend rest Borrower 3 puts money in his/her bank, bank hold Resv, lend rest

36. M1 - Physical US dollars M2 - Physical US dollars + Dollar amount held in average savings accounts M3 - Physical US dollar + Dolar amount held in large saving accounts + Dollars held overseas

37. Work #21a , Title “ Partner Questions ” Read and then respond to these questions with a partner ( include their name at the end ) : Changing the Discount Rate Federal reserve makes short term loans to banks currently: 0.50%. These loans are to cover any shortages in a banks reserve requirement with the Federal Reserve (Fed is lender of last resort). 2) If the Fed increase the Discount Rate to 9.50%, reduce inflation or unemployment?

38. Notes #21a , Title: “ Federal Reserve Notes ” Discount Rate: Fed can make short term loans (of new money) to banks, DISCOUNT RATE 0.5% This impacts interest rates bank charge borrowers (cost of biz) Borrows buy more or less based on interest rates.

41. Work #21a , Title “ Partner Questions ” Read and then respond to these questions with a partner ( include their name at the end ) : Making Open Market Operations on Bonds When the US Gov needs to borrow money, it issues US bonds, These bonds are sold to private investors, the Fed can then buy US bonds from private investors. The Fed does not buy directly from the US gov, b/c its goal is to control money supply, not help the gov with its debt. 3) Fed buys US bonds reduces inflation or unemployment?

42. Notes #21a , Title: “ Federal Reserve Notes ” Open Market: Fed buys/sells US bonds from investors This expands money/freezes money. Less money means banks pay more in savings interest rates % Borrows buy more or less based on interest rates.

43. Review 1) Federal Funds Rate Target : Funds rate is the interest rate banks loan to each other. All other interest rates follow this. Fed can’t force private interest rates, but they use the 3 tools to try to pressure banks to hit target. Currently: 0.25%

44. Notes #21b , Title: “ Federal Reserve Notes ” 3) Federal Funds Rate: Fed most often: 1: buy/sell bonds 2: change discount rate 3: change bank reserve req These change how much money is “out there”, so it changes what banks charge each other: FED. FUNDS RATE TARGET This impacts interest rates bank charge borrowers (cost of biz) Borrows buy more or less based on interest rates. Fund rate is a goal/ bench mark (faster to measure than changes to consumer loan rates)

50. Work #21b , Title “ Fed Wrapup ” Answer with a partner ( include their name ). 1) Why was the Fed created to control the money supply, rather than Cong/Pres, how if Fed protected? 2) Fed can just print unlimited money why does it not just use this enormous power? 3) Why doesn’t the Fed just buy US Bonds (US debt) straight from the gov, wouldn’t that help the gov out (hint: is the surpose of Fed buying bonds to help US debt or to control money supply) 4) Why interest rates directly tie to ppl spending? 5) What is one concept you are most confused of

52. Review 1) Appreciating : Gain value over time: education, real estate, businesses 2) Depreciating : Lose value over time: clothes, cars 3) Loans and the American Dream : Loans allow anyone who will work hard to get a chance. Without loans, the economy would grow slower since you’d have to raise $. Poor students can get an education, small businesses can expand into a new area.

53. Notes #21b , Title: “ Housing Loans ” 1) Home Loans : a) 80/20 Loan: Pay 20% down, cheapest APR, right now about 5% APR. b) O down Loan: Pay for default insurance c) Fixed Loan: Fixed APR (15yr or 30yr) d) ARM Loan: Adjust to inflation, good current int is high, (sometimes a mix: 5/1) . e) Interest Loan: Pay interest first, then principal, cheaper bills earlier, more exp later (used if you plan to sell right away) f) Home Equity Loan: Use house equity (% of value you own) as down for new loan.

54. Work #19b , Title “ Should You Buy ” Here’s the scenario, you make: $70k, after tax monthly: $4000 (48k). 1) List your monthly cost, ranges: a) Food (out+cook): $150-X b) Cable+Internet: $30-200 c) Cell: $10-80 d) Electricity: $20-80 e) Gas + Insurance (liability or full): $80-200 f) Shopping: $50-X g) Car Payments (10k-40k): $150-600 h) College Loans (15k-150k): $100-1000 i) Savings: $4000 - (A thru H) DOUBLE CHECK

55. 2010 To adjust for inflation/ COLA (cost of living) Estimate an additional $10k Though finding jobs tough for grads in 2010

56. Work #21c , Title “ Should You Buy ” Here’s the scenario, you make: $50k, after tax monthly: $2800 (34k). 1) List your monthly cost, ranges: a) Food (out+cook): $150-X b) Cable+Internet: $30-200 c) Cell: $10-80 d) Electricity: $20-80 e) Gas + Insurance (liability or full): $80-200 f) Shopping: $50-X g) Car Payments (10k-40k): $150-600 h) College Loans (15k-150k): $100-1000 i) Savings: $4000 - (A thru H) DOUBLE CHECK

57. Work #21c , Title “ Should You Buy ” Here’s the scenario, you make: $70k, after tax monthly: $4000 (48k). You live in San Jose: Buy: $ mo Rent: $ mo 2) Explain if you should buy or rent. Add rent or mortgage to your list. Monthly Mortgage: $ OR Just Tax (1% of price): $ Rent: $

58. Work #21c , Title “ Should You Buy ” Here’s the scenario, you make: $50k, after tax monthly: $2800 (34k). You live in San Jose: Buy: $ mo Rent: $ mo 3) Explain if you should buy or rent. Add rent or mortgage to your list. Monthly Mortgage: $ OR Just Tax (1% of price): $ Rent: $

59. Notes # , Title: “ Housing Notes ” Housing Bubble (tomorrow): Clinton wants more Am. to reach Am. Dream of home ownership, pressures Fannie Mae+Freddie Mac Federal National Mortgage Assoc + Federal Home Loan Mortgage Corp 9/11, Fed Reserve lower interest rates to prevent econ panic Both mean more money avail to loan, fueling hot housing market Invest. banks develop ways to expand money even more, more riskier loans…POP!

60. Work #21d , Title “ Video: Preview Financial Crisis ” 1) Copy Source Title: Property Ladder 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 Sections Time Bookmark: 00:00

61. Work #21e , Title “ Closer Shareout ” Pick the 1 most important thing you learned today to share with your partner. 1) Write down a brief summary of what your partner said ( include their name ). 2) Rate 1-10 (1: confused, 10: too easy) how well you well you mastered today’s lesson. 3) Summarize Mr. Chiang’s feedback.

62. Homework: 1) Study today’s notes + work sections for a definate workbook quiz on Fed (on today’s notes only) 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 )