Insigma HengTian Financial Crisis

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Factors that Contributed to the Global Financial Crisis

WILLIAM R. HOLLAND FELLOW PROGRAM FOR BUSINESS STUDY IN ASIA

May 12, 2009

Fudan UniversityMr. Hong LeimingMs. Tang LuMs. Zhang WenqianMr. Zhang Jianxin

Appalachian State UniversityMs. Anna GaugertMs. Mary HerronMr. David WilsonMs. Catherine Wood

Mary “Beth” Herron

25.06.09

William R. Holland Fellows Program for Business Study in Asia 2009

ABOUT ME…

Appalachian State University –Boone, North Carolina

Master’s Degree Industrial Organizational Psychology & Human Resource Management

(IO & HRM)

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WHAT CAUSED THE FINANCIAL CRISIS?

• Three Interrelated Causes:

1. Relaxed Mortgage Lending Standards

3. Housing Bubble

5. Hidden Financial Risk

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– Relaxed Mortgage Lending Standards

– Housing Bubble

– Hidden Financial Risk

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RELAXED MORTAGE LENDING STANDARDS

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• New Financial Instruments:


RELAXED MORTAGE LENDING STANDARDS

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• New Financial Instruments:

Subprime Alt-A (Alternative A)

• Poor Credit History

• Reduced documentation

• High payment-to-income ratio

• Low/No down payment

• Strong Credit History

• Reduced documentation

• High payment-to-income ratio

• Low/No down payment

• Not owner occupied

• Also called a liar loan





– Housing Bubble

– Hidden Financial Risk (mis-management)

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HOUSING BUBBLE

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HOUSING BUBBLE

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83%increase


HOUSING BUBBLE

• Housing Bubble was caused by three factors…1. Low interest rates2. Speculation3. Push for Home Ownership

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William R. Holland Fellows Program for Business Study in Asia 2009 11

• Housing Bubble was caused by three factors…1. Low interest rates

2. Speculation

3. Push for Home Ownership

HOUSING BUBBLE



2. Speculation


HOUSING BUBBLE

Definition:Price the borrower pays to the bank for the use of the loan money



2. Speculation


HOUSING BUBBLE




2. Speculation


HOUSING BUBBLE

Definition:Borrower receives a loan to purchase a home as an investment, with an intention to sell it in the future for profit


• Housing Bubble was caused by three factors…– Low interest rates– Speculation– Push for Home Ownership

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HOUSING BUBBLE


• Housing Bubble was caused by three factors…– Low interest rates– Speculation– Push for Home Ownership

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HOUSING BUBBLE

Increasing homeownership rates has been a goal of Democrat and Republican administrations as a way to: 3.Stabilize struggling neighborhoods;

5.Reduce crime; and

7.Address a fairness issue for minorities


HOUSING BUBBLE BURST





– Housing Bubble

– Hidden Financial Risk

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• Repackaging of Loans into Financial Instruments

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HIDDEN FINANCIAL RISK



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Banking Systems: Worldwide Financial Crisis

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CHINA USA


Questions?

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Insigma HengTian Financial Crisis

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