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FINANCIAL MARKET COURSES

The Financial Crisis

The degree to which the many components of the financial system are intermingled was made abundantly clear by the sequence of events that led to the global financial crisis. Before 2007, few people had heard much about the US subprime mortgage sector, and terms like ‘credit crunch’ and ‘toxic debt’ had yet to enter into everyday usage. However, problems in the subprime area and rapid declines in the values of some of the associated assets, led to unprecedented difficulties across the global financial system.

 

This course describes the unfolding of this watershed event, from the development of the crisis in the US subprime mortgage market to its spread across global markets and institutions. It also looks at how the authorities responded, and the lessons to be learned for future generations.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Describe the extraordinary growth and collapse of the US subprime mortgage market

    Explain how the securitization of subprime mortgages lay at the heart of the wider impact of the crisis

    Realize the magnitude of the crisis as emphasized by the number and type of institutions, markets, and countries affected

    Describe some of the main factors that caused the crisis

    Outline the response of governments and financial authorities to the crisis

  • COURSE OUTLINE

    Topic 1: The Starting Point

    The US Mortgage Market

    o Growth of MBS Market

    o From Prime to Subprime

    o What is a Subprime Mortgage?

    New Mortgage Structures

    o Why were Subprime Mortgages Permitted?

    o The Phenomenal Growth of Subprime

    Topic 2: The Spread

    The First Cracks

    o Defaults & Delinquencies Rise

    The Spiral Begins

    o House Prices Fall, Foreclosures Rise

    We Come to the Crunch

    o The Impact of Securitization

    Lending is Frozen

    o The Crisis Spreads to the Interbank Market

    Topic 3: The Casualties

    Lenham Brothers

    Other Financial Indistry Casulaties

    Effect on Real Economy

    Sovereign Debt Crisis

    o Iceland

    o Greece

    o Ireland

    o The ‘PIIGS’

    o Extinction of the Celtic Tiger

    o EU Stabilization Package (EFSF)

    Topic 4: The Causes

    The Blame Game

    o Loan Underwriting Standards

    o Predatory Lending

    o Predatory Borrowing

    o Securitization & Investor Ignorance

    o Lehman Brother’s Collapse

    o Poor Regulation

    o Credit Default Swaps (CDS)

    o US Economic Downturn

    Topic 5: The Response

    Initial Response

    o Liquidity Injections

    o Interest Rate Cuts

    o State Guarantees

    o Bank Fund Raising

    The Moral Hazard Problem

    Longer-Term Solutions

    o Increased Capital Requirements

    o Changes to Regulatory Framework

    o Banking Taxes

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    75 Minutes

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