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Modeling the Financial Crisis

Modeling the Financial Crisis. A few examples: New York City, Ohio, and California Presented by: Dr. Mark D’Amato and Rod Motamedi. Where the Crisis Began. Speculation in housing market Creation of the Mortgage Backed Security and the Credit Default Swap

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Modeling the Financial Crisis

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  1. Modeling the Financial Crisis A few examples: New York City, Ohio, and California Presented by: Dr. Mark D’Amato and Rod Motamedi

  2. Where the Crisis Began • Speculation in housing market • Creation of the Mortgage Backed Security and the Credit Default Swap • Lack of government regulation in adjustable rate mortgages, and poor underwriting standards • Allowed MBS and CDS to continue unfettered

  3. Creation of Mortgage Backed Securities

  4. Spreading Contagion • Defaults in subprimes begin to increase, value of MBS decline • Financial companies take huge losses, begin to shore up new capital • Credit becomes scarce, lending slows, leveraged institutions unwind at a loss • Fear of counterparty risk from holdings of Credit Default Swaps and increased risk of default • Gov’t takes serious steps to prevent systemic failure as assets decline in value

  5. Regional Impact • Drop in employment • Decline in personal income • Decline in consumption expenditures • Decline in employment in industries that supply consumption goods

  6. Regional Impact Cont. • Decline in population • Due to loss of employment opportunities economic migrants seek employment outside the region • Decline of government spending

  7. Financial Sector Impact for NYC Scenario • Taking out growth from 2004-2007 in the financial sector for New York City • Monetary Authorities 3,349 Jobs • Sec, Comm Contracts 10,146 Jobs • Ins Carriers, rel act 2,255 Jobs Total 15,750 Jobs

  8. Total Impact for NYC Job Loss • 2009  43.40 thousand jobs lost • 2013  44.96 thousand jobs lost Gross Regional Product Loss • 2009  $9.311 billion • 2013  $10.55 billion

  9. 2009 Financial Sector Impacts - NYC

  10. Motor Vehicle Manufacturing Sector Impacts for Ohio Scenario • Taking out growth from 2004-2007 in the motor vehicle manufacturing sector of Ohio. • Over the four years there was a total of 3,013 jobs lost.

  11. Total Impact for Ohio Job Loss • 2009  10.36 thousand jobs lost • 2013  11.39 thousand jobs lost Gross Regional Product Loss • 2009  $934 million • 2013  $1.114 billion

  12. 2009 Motor Vehicle Manufacturing Impacts - Ohio

  13. Construction Sector Impacts in California Scenario • Taking out growth from 2004-2007 in construction sector for California • The total job loss in construction for 2004-2007 is 14,043 jobs.

  14. Total Impact for California Job Loss • 2009  30.36 thousand jobs lost • 2013  32.85 thousand jobs lost Gross Regional Product Loss • 2009  $2.015 billion • 2013  $2.425 billion

  15. 2009 Construction Sector Impacts - California

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