A Comparative analysis of Savings & Loan Crisis and Sub Prime Crisis

1. Prepared By: Amar Ranu (905) Deepak Thakkar (909) Dhananjay Kumar (917) Rohitesh Hota (927) Shakti Satapathy (930) Under Guidance of: Dr. S K Ghosh

2. What are we here for ? Lets understand the Objective . . . What is Crisis all about ? Lets Understand the Crisis . . . Numbers Speak . . . Lets have a look at the facts & figures. . . When did all this occur? Lets understand the Time Line of Events . . . What went Wrong ? Lets Compare the Causes . . . . What was the fallout ? Lets Understand the Effects . . . What was the Action taken ? Lets Understand the Role of Government . . . What are the Lessons Learnt? Lets Conclude. . .

3. What are we here for ? Lets understand the Objective . . .

4. Objective To compare and analyze Similarities and Differences in the Savings & Loan Crisis of 1980s vis-à-vis Subprime Crisis of 2008.

5. What is Crisis all about ? Lets Understand the Crisis . . .

6. What was Crisis all about? The savings and loan crisis of the 1980s and 1990s (commonly referred to as the S&L crisis ) was the failure of 745 savings and loan associations (S&Ls aka thrifts ). The ultimate cost of the crisis is estimated to have totaled around $160.1 billion, about $124.6 billion of which was directly paid for by the U.S. government—that is, the U.S. taxpayer, either directly or through charges on their savings and loan accounts—which contributed to the large budget deficits of the early 1990s. Saving and Loan Associations (thrift institutions) are deposit-taking institutions initially created for the purpose of taking in deposits from private citizens and using them to make home mortgage loans. The subprime mortgage crisis is an ongoing 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. The crisis, which has its roots in the closing years of the 20th century, became apparent in 2007 and has exposed pervasive weaknesses in financial industry regulation and the global financial system. Approximately 80% of U.S. mortgages issued in recent years to subprime borrowers were adjustable-rate mortgages. When U.S. house prices began to decline in 2006-07, refinancing became more difficult and as adjustable-rate mortgages began to reset at higher rates, mortgage delinquencies soared. Securities backed with subprime mortgages, widely held by financial firms, lost most of their value. The result has been a large decline in the capital of many banks and USA government sponsored enterprises, tightening credit around the world.

7. Incompetence Greed Fraud Policy Blunders Inadequate Regulatory Oversight Sharply Shifting Financial landscape Some Common Ingredients

8. Numbers Speak? Lets have a look at the facts & figures. . .

10. Fig: Unemployment Rate of USA Facts & Figures

11. Facts & Figures

12. Facts & Figures

13. When did all this occur? Lets understand the Time Line of Events . . .

14. Cut in Interest Rate 2000-2001 Triggered Borrowings and Availability of Cheap Money Growing Demand Led to Irrational Rise in Prices Prices Fell and The Housing Bubble (in Aug 2006) Lending Industry Resorted to Exotic Loans and Riskier Practices (to keep this boom going) Assumptions That The Situation will Remain Same and Refinancing Would Be Possible Defaults / Foreclosures Stable Interest Rate & Focus on Long Term Home Mortgage Lending Leeds to S&L Growth (1950s-1960s) Due to High Inflation in The US, Deposit Funds Begin to Flow out of S&Ls (1970s) S&L Industry Starts Showing First Sign of Becoming Insolvent (Late 1970s) DIDMCA Began Phasing Out Interest Rate Ceilings on Deposits (1980s) Recession Hits The U.S. economy. Major Increase in S&L Failures. (1981-82) FIRREA Finally Eliminated FHLBB and the Bankrupt FSLIC. (1989) Recession Hits the U.S. economy. Likely connections between savings inst. And drops in GDP. (1990-91) Time Line of Events

15. What went Wrong ? Lets Compare the Causes . . . .

17. What was the fallout ? Lets Understand the Effects . . .

19. What was the Action taken ? Lets Understand the Role of Government . . .

22. What are the Lessons Learnt? Lets Conclude. . .

25. THANK YOU . . . .