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Global Economic Crisis What happened?

Last half of 1990s: unprecedented growth and prosperity 2000: dot com bubble burst 2001: 9/11 terrorist attacks; stock market dropped; unemployment rose; fear country was on brink of full-blown recession. By end of 2002: Fed decreased interest rates from 6.5% to 1.25%

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Global Economic Crisis What happened?

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  1. Last half of 1990s: unprecedented growth and prosperity 2000: dot com bubble burst 2001: 9/11 terrorist attacks; stock market dropped; unemployment rose; fear country was on brink of full-blown recession By end of 2002: Fed decreased interest rates from 6.5% to 1.25% Economy awash in money; subprime mortgage loans came into play Home prices rose as demand skyrocketed Global Economic CrisisWhat happened?

  2. Banks and investment houses invented complex ways to resell the mortgages as securities No government regulation Fin. Institutions did not maintain reserves in case mortgage-backed funds lost value 2006: housing prices peaked; prices fell Subprime borrowers owed more than homes worth; unable to refinance to lower payments Foreclosures climbed Fin. Institutions feel pressure July 2008: Bear Stearns forced to merge with JPMorgan If it sounds too good to be true, it probably is.

  3. July 2008: Fannie Mae, Freddie Mac, Lehman Brothers, file for bankruptcy Sept 2008: Fed lends $85b to AIG, for 80% stake Sept. 29, 2008: Dow falls 700 points; House fails to pass bailout of other financial institutions Oct 12, 2008 CEOs of nine major banks called to Treasury Dept. Federal Gov’t to become major stockholder in exchange for $1.25b taxpayer money Oct. 2008: 6.5% rate of unemployment versus 4.3% March 2007 A billion here and a billion there, pretty soon you’re talking real money.

  4. April 2009 Chrysler files for BK; purchased by Fiat June 2009: GM files for bankruptcy Fed pours $50b into GM reorganization for 60% stake GM sheds Pontiac, Saturn, Hummer, and Saab brands Plants, assembly lines, distribution warehouses close GM stock falls to 75 cents/share and is replaced on Dow Jones index by Cisco Systems Three of largest BKs in history occurred in 2008-09: GM, Lehman Brothers, Washington Mutual Another shoe drops

  5. July 2009: 9.4% U.S. unemployment rate; 11.9% California 83 bank failures YTD Dow up 8.75% YTD; NASDAQ up 28.64%; S&P up 13.91% Cash for Clunkers results in sales of 690,114 vehicles at cost to taxpayers of $2.88b Fed provides $300m for Cash for Appliances Fed about $2.1Trillion in debt, and growing AIG has repaid $85b of Fed loan, with interest Goldman Sachs has repaid $1.1b Fed loan, with interest Small signs of recovery appearing worldwide Where we are today

  6. CA Bankruptcy Filings • Filings in 2007: 72,615 • Filings in 2008: 133,223 • Filings in 2009: 205,705 • 95% of bankruptcy filings were consumers, not businesses • O.C. Bankruptcy filings Jan-Mar 2010: 4,292, an increase of 46.8 percent more than same period last year

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