FINANCIAL CRISIS

2008
 GROUP MEMBERS

ALI AHMED 32822

FAIZA HAIDER 30991
MUHAMMAD QAYYUM 25809
QURATULAIN ASHFAQ 33274
AHMED SIKANDER 26103
MUHAMMAD ARSALAN 25832
 CONTENT
INTROD
UCTION
CAUSES

STAGES

PRESEN
T SITUATION
FUTURE
CHALLENGES & REFORMS
CONCLU
SION
 INTRODUCTION
G
lobal Financial Crisis first started with the collapse of U.S housing
bubble.
F
rench Bank BNPs announcement that it was suspending
redemptions from three of its funds.
L
ehman Brothers collapsed, triggering the on-set of a world wide
financial crisis.
 CAUSES
1. Housing Boom:
2. Subprime mortgage loans:
3. Mortgage-backed securities (MBS) and collateralized

debt obligations (CDO):

4. Housing Bubble Burst:
5. Credit crunch:
 Housing Boom

In the late 1990s due to the high

tech bubble burst and the Federal
Reserve lowered their interest
rates and there was an increase
in availability of capital and
triggered the housing boom.
 Subprime mortgage loans
1.Banks started issuing subprime mortgage
loans to the general public.
2.The banks initially offered mortgage loans
to their customer with an impressive credit
rating.
3.offering the mortgage loan to customer
with poor credit rating by charging higher
interest rate.
4.so many customers having excess to such
loans to started demanding houses
 Mortgage-backed securities (MBS) and
collateralized debt obligations (CDO):
The securities were rated AAA by the rating agencies, so Investors
were not buying a security, they were buying a triple-A rating
 Housing Bubble
Burst
when the housing bubble burst (in late
2006) and home prices fell,
homeowners unable to meet monthly
:
payments lost their homes in
foreclosures,
while banks and other mortgage-lenders
lost hundreds of billions (unable to
recover amounts loaned).


Credit crunch:

Amidst a cascade of fear about the

solvency of financial and other institutions
heavily invested in MBSs and CDSs,
lenders stopped offering loans and
entering into other financial transactions
fearing the borrowers would be unable to
repay the loans
 SITUATION AT THE CRISIS
TIME
W
hen banks were busy in making loans to create too much money
quickly by lending huge sum into the property market pushes up
the prices of houses along with the level of personal debt.
D
ebt rises quicker than income banks find themselves in danger of
going bankrupt.
S
lipping into a debt-deflation spiral.
 FUTURE CHALLENGES
F
iscal Policies and Debt:
O
ne of the major challenge in light of large public debts.
I
ncludes long run growth, stabilization policy, income redistribution,
correcting market failures.
R
eform: Central banks needs to be subject to more check and balances than
is currently the case.
 FUTURE CHALLENGES
M
acro-Economic Imbalances:
T
he imbalances have led to the rapid expansion of banks and
financial institutions.
R
eform: Countries should be taken in trust by IMF on being treated
fairly and not being forced to implement harsh measures. So they
do not need to build up enormous reserves.
 FUTURE CHALLENGES
F
inancial System:
C
hallenge to handle the problem of securitized sub prime mortgages
when spread in too many other parts of system because of
interaction with real economy.
R
eform: firms should not be monopolistic, not only medium run
stabilization policies but long run growth policies.
 CONCLUSION
The financial crisis was
avoidable.
Failures of corporate governance
and risk management were key
cause.
Too much risk, too little capital
and too much dependence on
short term funding.
Matters must be addressed and
resolved to restore faith in
financial markets.