Credit Crisis 2007-2008 Credit Crisis 2007-2008

By: Raution JaiswalWillamette University(Atkinson Graduate School of Management)

Eventful 2008Eventful 2008March - Bear Stearns: Sale to

JPMorgan @ $10; $29bn loan from Fed

July - Fannie Mae / Freddie Mac $200bn commitment

September - Lehman Brothers Holdings Files for bankruptcy sold to Barclays

September - Merrill Lynch sold to Bank of America for $50bn.

September - AIG: Treasury provides $85bn

September - Washington Mutual failed and sells branch system to JPMorgan for $1.9bn.

How are financial sector stocks doing?How are financial sector stocks doing?

XLF Financial Sector SPDR ETF

DJIA

Changing LandscapeChanging Landscape

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4

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New bank holding companies

Chain ReactionChain Reaction

Who to blame?Who to blame?

Heroes & VillainsHeroes & Villains

Homeowners

Mortgage Brokers

Commercial & Investment Banks

Securities Underwriters

Credit Rating Agencies

Corporate Investors

Corporate Shareowners

Regulators

Lack of Prudence at All Levels

IssuesIssues

Moral hazardConflicts of InterestRegulationFinancial engineering

Top 8 lessons from the credit crisisTop 8 lessons from the credit crisis

1. Economy is essentially not predictable and understandable

2. Risk needs respect

3. Models have their limits

4. Regulation has its limits too

5. (Il)liquidity is the ultimate killer

6. Monetary policy-single focus is price stability

7. Accounting can change everything

8. The double edged sword of leverage

Top 8 lessons from the credit crisisTop 8 lessons from the credit crisis

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