Globalisation the global credit crunch PDF

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Watch video: The greed came documentary .com bubble - the 9/11 attack - slashed interest rates in US 1%- japan and the east lend their money to the west. Avoid recession. Gordon brown- wanted the rich to pay the same tax than the rest of us, however he changed his mind as he wanted the super rich to stay in the UK. Hedge fund officers pay lower tax than their servants Leverage-cost of borrowing decreased vastly after the 9/11 attack. Risk became cheap1.2 billion dividend - private equity- no tax paid - their mates and servants paid more tax than the hedge fund manager. Private equity- playing the stock market Before the credit crunch - there was extreme economic growth - excessive returns Stockbrokers - use leverage to create extraordinary profits Not largely regulated- top 3 institutions - hedge funds ( only risk if they consistently lose money then investors will take their money back) Hedge funds - cannot allow to make mistakes - they can be very severe George Soros -1992 the man who bankrupt the bank of england Pay structure - they wrote the rules of the greed came to avoid loss. E.g if you gave them 1 billion pounds and they turn it into 2 billion the fees is 20% Leaving all the losses for the original investor. The reason of the success of fund managers : ● Bull market ● Having access to banks money The method used to create the wealth by the fund managers was the very reason why one of the most developed economies of the world collapsed. The deposits fell The banks could not provide enough for the products Machine that wall street created: Prime Mortgages work- so they decided to lend to subprime borrows- not good credit rating They would borrow to everyone -without making sure that they can pay back.

After the loans were made - they were sold to investors miles away - no ongoing relationship or responsibility from the lending banking. Every broker would be paid commission for every loan taken. Risky loans into supposedly safe investments. Structure finance- risky loans sold to investors that did not know that subprime borrowers might not be able to pay. Losses for people who invested. 2006- 1.3 trillion ● ●

Everything is positive and bullish The market gets arrogant.

More of the borrowers defaulted than they expected Increase in the number of evictions. ● Subprime borrowers- When rates rose default was inevitable ● Sub-primes did not know that they had variable interest rates. These investments were ignored because they assumed that Triple AAA credit rating they do not default. They are very few triple AAA. The institutes that rated the investment on the loans as Triple AAA’s were paid by the banks, the agency did not go to the sub-primes to check whether they can pay back. ( on past data and google earth). Borrowing money= You got to pay it back Based their ratings on historical data= catastrophic error People who have borrowed - did not pay back the interest in the first 6 months- default rates escalated dramatically! Sub-primes were going bad than any other loan They expected that they would default on anything else rather than defaulting on their home payments - however they defaulted on the home payment and kept their credit cards. BMP: could not value the sub-prime loans, Banks got reluctant in borrowing to other banks as they were not sure which holded sub-prime loans. People got scared- no trust - not happy to work together= securities declined = fear was well found Asymmetry of information caused the distrust.

An introductory rate (also known as a teaser rate) is an interest rate charged to a customer during the initial stages of a loan. The rate, which can be as low as 0%, is not permanent and after it expires a normal or higher than normal rate will apply. Banks in the west lost 100 of million pounds and how to be bailed out from governments. Some of the bankers responsible for the finance crash lost their jobs. However they were not hurt - they probably ended spending their money and having lavish lifestyles abroad. For the super luxury products - they were not affected by the crash. They were always be demand for the a e.g million dollar watch. Moral hazard; the bankers know that the government will bail them out. They were greatly incentivized to take on risk. The credit production process is critical to the general operation of the economy and it affects all of us. Bank have less money to lend and has created a vicious cycle - people borrow less - saving more - slow growth. Parabais- 2006 northernrock-2007- lehman brothers Mention basel commity and its contirbution to the crisis. Conclusion in regards...