What Happened | How It Happened | Aftermath

1. Financial Crisis 2008
Overview
WHAT HAPPENED | HOW IT HAPPENED | AFTERMATH
By Thanuja Seneviratne

2. Agenda
 What Happened
 Before September 2008
 Freddie Mac & Fannie Mae
 Collapse of Lehman Brothers
 AIG Fear & TARP
 Spreading Global
 How it Happened
 Sub-prime Mortgage Lending
 CDOs & Derivatives
 Housing Bubble bust
 Aftermath
 Blue Monday Crash & Further advancement in Europe
 Financial Crisis Inquiry Commission
 Occupy Wall Street

3. What Happened
 Before September 2008
 In 2005, Raghuram Rajan presented his paper "Has Financial
Development Made the World Riskier?"
 In 2006, Nouriel Roubini warned IMF about housing bubble bust and
possible recession
 In 2006, Satyajit Das published his book “Traders, Guns & Money”
describing the risks of derivatives
 In 2007, key Mortgage Lending companies collapse
 In 2008 Jan, Financial Markets downturn started
 In 2008 Mar, Bear Stearns acquired by JPMorgan for $2 for share

4. What Happened
 Freddie Mac & Fannie Mae
 Government sponsored Enterprises (GSE)
 Exempted from regulation
 Issue mortgage-backed securities (MBS’s) just like investment banks
 By Sept 2008, they are in debt of MBS’s worth $ 5 trillion
 Sept. 2008, Treasury intervention, placed the two under government
supervision

5. What Happened
 Collapse of Lehman Brothers
 Longest-running Wall Street CEO Dick Fuld
 Hank Paulson and government meet up with other bankers in Wall
Street
 Moral Hazard
 Chapter 11 Bankruptcy
 Shockwave of events after the Leahman bankruptcy

6. What Happened
 AIG Fear & TARP
 AIG in the brink
 Understanding Credit Default Swaps
 USD 85 Billion lending by Federal Reserve
 Inevitable collapse of whole financial system
 Hank Paulson and Congress meeting for USD 700 billion bailout
proposal as TARP
 Defeat of Emergency Economic Stabilization Act – Bailout Bill
 Passing of Bailout Bill in October 2008
 Capital injection of the large financial institutions

7. What Happened
 Spreading Global
 G7 Summit in October 2008
 Iceland Bankruptcy
 Europe shockwave and the glimpses of riots

8. How it Happened
 Sub-prime Mortgage Lending
 Prime mortgage lending
 Housing Bubble
 Investors and greed of Wall Street lead to sub-prime mortgage lending
 Underwritting & Bonus scheme

9. How it Happened
 CDOs & Derivatives
 Traditional derivatives in commodities market
 Ideas for minimizing credit risks for banks
 First credit default swap and Blythe Masters
 Synthetic Collateral Debt Obligations (CDOs)
 Rating companies and risk levels
 De-regulation of derivatives
 New age in financial markets!

10. How it Happened
 Housing Bubble bust
 Unexpected happened!
 Foreclosures spreading throughout US
 CDOs going bad and insurance companies cannot keep their obligations
 Mortgage companies going under followed by Investment banks and
insurance companies
 Investors losing the investments and stock market plummet

11. Aftermath
 Blue Monday Crash & Further Advancement in Europe
 RBS losses and British reaction
 Denmark, France and Germany response
 World Bank projection of world production loss

12. Aftermath
 Financial Crisis Inquiry Commission (FCIC)
 19 public hearings with major bankers and other parties
 Report and Conclusions
 Was avoidable!
 De-regulation
 Governance and risk management
 Lack of transparency
 Government’s ill-preparedness
 Systematic breakdown of ethics and practices

13. Aftermath
 Occupy Wall Street
 Protest movement
 Enter the Anonymous hacktivist group
 “We are 99%”
 Income inequality
 Noam Chomsky spoke out and Michael Moore addressed the crowd
 Further marches and protests throughout 2011 and 2012

14. THANK YOU!