Sub Prime Mortgage Crisis : Overview

3016 WordsAug 15, 201413 Pages
FECON SUB-PRIME MORTGAGE CRISIS (2007-2009 JANUARY) OVERVIEW The credit crisis is a worldwide financial crisis that includes terms like sub-prime mortgages, collateral debt obligations (CDOs), Frozen Credit Markets and the Credit Default Swaps. Everyone has been effected been affected in the credit crisis in a way. The credit crisis brings home owners and investors together. Home owners represent mortgages and the investors represent money which consists of large institutions such as mutual funds and also pension funds. The home owners and investors are brought together by the financial system- a bunch of banks (Wall Street) and the banks would earn commission. A few years ago, investors had a huge pile of money and they bought treasury…show more content…
There will be higher returns for riskier CDOs and lower returns for safer CDOs and therefore the banks insured it for a small fee called the credit default swap so the credit rating agency will rate it as a triple A investment and therefore the investment banker can sell it to other bankers making money and replacing what he has borrowed. The investment banker would want more CDOs and then the lender will call the bankers for more mortgages but there aren’t any more home owners. Home owners were not required to pay down payment and also no proof of income is required. This caused irresponsible home owners to buy homes and they default on their payments. This cause the housing prices to drop and everyone went bankrupt. DESCRIBE THE IMPACT OF THE U.S SUB-PRIME FINANCIAL CRISIS ON UNITED KINGDOM. THESE INCLUDE THE IMPACT ON CAPITAL MARKETS, FINANCIAL INSTITUTIONS, ECONOMIC GROWTH, TRADES, INVESTORS’ CONFIDENCE, UNEMPLOYMENT RATE, ETC. US had its largest investments in United Kingdom which was 18% of the capitalization of the United Kingdom stock market holding $638 billion of Foreign Stocks in UK as of June 2007. This is shown in Table 1 below showing the amount of Foreign stocks held by Foreign Investors. The US investors was the largest external investor in the UK as it accounted for 43% of the value of total UK stocks held by foreign investors. This can be seen in Table 2 below showing the total foreign
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