The US recession of 2008 was caused by the collapse of the housing bubble fueled by predatory lending practices and deregulation of the financial industry. Subprime mortgages were provided to borrowers who could not afford them, and these risky loans were repackaged and sold as secure investments. When borrowers began to default, the value of these investments collapsed, triggering a global financial crisis as major banks and institutions faced huge losses. The recession had widespread impact around the world and governments spent trillions bailing out failing banks.

1. US RECESSION 2008
(HOUSING BUBBLE)
Deepankar Khare

2. BEGINNING OF THE FIASCO
• Glass-Steagall Act,1935 was replaced by Gramm–Leach–Bliley Act,1999
• Relation between Real Street & Wall Street (Extreme Capitalism)
• Effects of DOT COM bubble
• Global Investments
• Greed of Wall Street Investors
Commercial
Banks
Insurance
Agencies
Investment
Banks

3. Post 2000s
• FEDERAL Reserve declined the interest rate to 1% from 4% to encourage spending.
• Potential Investors willing to invest but interest rate is very low.
• Housing investment begins where loans were provided to non secured citizens also
•Prime Mortgages & Sub Prime Mortgages
• Collateralized Debt Obligations (CDO’s)
• Credit Default Swaps
• Role Of Insurance agencies and Rating Agencies
• Greed of 1% resulted into collapse of Whole Economy.
• Mahatma Gandhi: “The world has enough for everyone's need, but not enough for
everyone's greed.”

4. SUB PRIME MORTGAGES
Loans provided to people who have poor record of income or poor credit history.
The Brokers got commission from the investment bankers to get them borrowers.
Collateralized Debt Obligations (CDO’s)
The bundle of mortgage backed securities tied up by the commercial banks to invest
them in the market with three layers
1. AAA ratings
2. AA Ratings
3. Unrated

5. BUBBLE BURST IN 2008
•Sub-Prime Mortgages stopped paying EMI’s which in case they lost their houses.
•The houses were available as auctions to recover the bank’s loan.
•But no buyer to buy the houses as most of the people have house now.
•Economics: More Supply Less Price
•The House prices started declining.
•As the Prime mortgages who were paying the Interest on Loan for Houses was
observing that the amount of EMI became more than the amount of the house.
•Prime Mortgages also stopped paying for the interest.
This created a stagnation in the economy, as there was more houses to
sell and no one is wiling to buy the house.

6. Involvement of Credit Rating Agencies & Insurance Agencies
• Major Credit Rating Agencies like Moody’s and Standard and Poor’s (S&P) were involved
in making this scam possible.
• Rated AAA or AA to the sub prime mortgages as welll.
• Insurance Agency Like American International Group (AIG) insured all the CDO’s and
made money via commission.
Nobody ever thought of the Burst, because all things were going smoothly

7. POST RECESSION
• Govt. Bailed Out Companies that were TOO BIG TO FAIL.
• AIG, Freddie MAC & Fanny MAE.
• Quantitative Easing by Federal Reserve – Ben Bernanke
• TARP organized by US Govt. (Trouble Assets Relief Program)
• Occupy Wall Street (OWS) movement by citizens of USA.
•USA’s GDP fell to -3.91% post 2008.
•Most people think that the big bank bailout was the $700 billion that the treasury department
used to save the banks during the financial crash in September of 2008.
•The Special Inspector General for TARP summary of the bailout says that the total commitment
of government is $16.8 trillion dollars with the $4.6 trillion already paid out.
•This is a story about lies, cheating, and a multi-faceted corruption which was often criminal.

9. Impact on WORLD’S ECONOMY
• Sovereign FUNDS injected by ICELAND in US Companies.
•The total debt was around 200% of their GDP.
• Most of the European Countries were affected by the Recession of 2008,
Including The Netherlands, The UK, Spain, Norway.
• Asian Countries like China, India (ICICI), Indonesia.
•Australia and New Zealand were also the victims of the bubble.

10. •US Government replaced Gramm–Leach–Bliley Act,1999 by
Dodd–Frank Wall Street Reform and Consumer Protection Act,2010.
•Introduced barrier in transactions between Commercial banks, Investment Banks, Insurance
Agencies.

11. SUGGESTED READINGS & MOVIES
• The Black Swan: The Impact of the Highly Improbable
Author: Nassim Nicholas Taleb
• The BIG SHORT
•The Wolf of Wall Street