1 / 28

The sub-prime crisis and equity markets: Bandaid solutions for a bleeding jugular?

The sub-prime crisis and equity markets: Bandaid solutions for a bleeding jugular?. by Alex Frino Finance Discipline. This talk. The US real-estate bubble bursts How the burst found its way into equity markets and across the pacific The band-aid solutions put up by equity market regulators

lawrence-sanders
Download Presentation

The sub-prime crisis and equity markets: Bandaid solutions for a bleeding jugular?

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The sub-prime crisis and equity markets: Bandaid solutions for a bleeding jugular? by Alex Frino Finance Discipline

  2. This talk • The US real-estate bubble bursts • How the burst found its way into equity markets and across the pacific • The band-aid solutions put up by equity market regulators • ASIC: A case study in a firm decisive regulator

  3. The real estate bubble Source: Shiller (2008), The Sub-Prime Solution

  4. Shillers offers lots of explanations for the bubble • An “epidemic” driven by house price optimism • Information cascades But not why it burst….

  5. A contributor to the “epidemic” • Comparable sales models contributed to the epidemic: • AVM’s • Desktop/Drive-by valuers • Valuation agents

  6. When did the bubble burst? a first look Source: Office of Federal Housing Enterprise Oversight

  7. When did the bubble burst? a second look Source: S&P

  8. The bubble bursts: a closer look

  9. The real-estate market in free fall

  10. Australian house prices

  11. What caused the real-estate bubble to burst?

  12. What caused the real-estate bubble to burst?

  13. The virus • Mortgage backed securities • Sub-prime paper • Toxic debt

  14. Mortgage backed securities • A certificate 1B-A1 in amongst issue • $150 million worth of paper • AAA rated • 0% delinquencies • 1,200 loans => 30% california and florida

  15. The transfer to the stock market….

  16. The transfer to the stock market….

  17. The transfer to the stock market…. 22 Feb 2007

  18. The virus crosses the Pacific …. * * *

  19. and crosses the Atlantic ….

  20. The response of the regulators(bans on naked short selling)

  21. The response of the regulators(bans on all forms of short selling)

  22. US reaction relative to slide in financials Ban on naked short-selling of financials introduced in USA Ban on short-selling of financials introduced in USA

  23. The response of our decisive regulator

  24. The effect of the response…

  25. The effect of the response…

  26. A bandaid solution at best… UK Announces ban Canada announces ban USA Announces ban on naked short selling of financials CAR’s of Financial Indexes USA Announces short selling ban on financials

  27. Closing comments • The equities markets dramatic fall was caused by toxic debt • Short selling attacked a symptom not the problem • So why do we still have short selling bans?

More Related