十分钟看懂次贷危机（PPT） .ppt

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1、The Crisis of Credit,by CAO RUI1300033,WHAT IS THE CREDIT CRISIS?,It is a worldwide financial fiasco involving terms you may probably heard like sub-prime mortgages,collateralized debt obligation,forzen credit markets,credit default swaps.,Who is affected?EVERYONE!,HOW DID IT HAPPEN?,HOME OWNERS,INV

2、ESTORS,Mortgages,money,Houses,Large Institution,These groups are brought together through the financial systema brunch of banks and brokers commonly known as wall street.,THE LOW INTEREST,One percent is a very low return on investment,so the investors say“no thanks”.,ON THE FLIP SIDE,On the flip sid

3、e,this means banks on wall street can borrow from Fed for only 1%,add to that general surpluses from Jpan,China,and Middle East,and there is an abundance of cheap credit.,LEVERAGE,This make borrowing money easy for banks and cause them to go crazy with LEVERAGE.,Here is how it works!,A NORMAL DEAL,s

4、omeone with 10 thousand dollars buy a box for 10000 dollars,He then sells it to someone else for 11000 dollars,For 1000 dollars profits,a good deal.,USING LEVERAGE,But using leverage,someone with 10000 dollars would go borrow 990000 more dollars,giving hin one million dollars in hand.,USING LEVERAGE

5、,Then he goes and buy 100 boxes with his one million dollars and sells them to someone else for 1100000 dollars.Then he pays back his 990000plus 10000 in interest and after his initial 10000,he is left with 90000 dollar profit verse the other guys 1000,CONNECT INVESTORS TO THE HOME OWNERS,A family w

6、ant a house,so they save for a down payment.,And contact a mortgage broker.,The mortgage broker connects the family to a lender who gives them mortgages.The broker makes a nice commission.The family buys a house and becomes home owners.,This is great for them because housing prices has been rising p

7、ractically forever.,BUT ONE DAY,One day,the lander gets s call from an investment banker who wants to buy the mortgages.The lender sells it to him for a very nice fee,LEVERAGE,The investment banker then borrows millions of dollars an buys thousands more mortgages and put them into a nice little box.

8、This means that every month he he gets payments from the home owners of all the mortgages in the box.,THE CDO,Then he cut the box into three slices safe,okay and risky.A CDO works like three cascading trays,as money comes in,the top tray fills frist then spills into the middle and whatever is left i

9、nto the bottom.The money comes from home owners paying off their mortgages,if some owners dont pay and default on their mortgage,less money comes in and the bottom tray may not get filled.This makes the bottom tray riskier and the top tray safer.,This is CDO.,The banks do all of this work so that cr

10、edit rating agencies will stamp the top slice as a safe,triple A rated investmentthe highest safest rating.The okay slice is triple Bstill pretty good.And they dont bother to rate the risky slice.,He sells the okay slice to other bankers and the risky slices to hedge funds and other risk takers.The

11、investment banker makes millions.He then repays his loans.,WHAT ABOUT THE INVESTORS,Finally,the investors have found a good investment for their money,much better than the 1%treasury bills.They are so pleased,they want more CDO slices.,So the investment banker calls up the lender wanting more mortga

12、ges.The lender calls up the broker for more home owners.But the broker cant find anyone.Everyone that qualifies for a mortgages already has one,but they have an idea.,AN NEW IDEA,When home owners default on their mortgage,the lender gets the house and houses are always increasing in value.Since they

13、re covered if the home owners default.Lender can start adding risk to new mortgages.,Not requiring down payments,no proof of income no documents at all.They started to get some that were.well,less responsible.These are Sub-Prime Mortgages,WORKS AS USUAL,Just like always,the mortgage broker connects

14、the family with a lender,making his commission.The family buys a big house.The lender sells the mortgages to the investment banker who turns it to CDO and sells slices to the investors and others.This actually works out nicely for everyone and makes them all rich!,THE TURNING POINT,No surprisingly t

15、he home owners default on their mortgage which at this moment is owned by the banker.One of his monthly payments turns into a house.No big deal,he puts it up for sell.But more and more of his monthly payments turn into houses.,SUPPLY&DEMAND,Now,there are so many house for sell on the market creating

16、 more supply.This creates an interesting problem for the home owners still paying their mortgages.,As all the houses in their neighborhood go up for sale,the value of their house goes down.And they start to why they are paying back their 300000dollars mortgages when the house is now worth only 90000

17、 dollars.So,they walk away from their house,default rates sweep the country.,BOMB!,He knows the stream of money isnt even adribble any more,The banker trys to sell to everyone,but nobody wants to buy his bomb,WORKS AS USUAL,But he is not the only one.The investors have already bought thousands of these bombs.The lender calls up to try and sell his mortgage,but the bank wont buy it,and the broker is out of work,the whole financial system is frozen,THANK YOU!,