The Subprime Mortgage Crisis

OBJECTIVES Define economic terms To identify Bush and Obama’s economic plans To analyze causes of current economic crisis Analyze political cartoons

Warm up: How has 9/11 shaped your lifetime?

Economic Advisors Former Chairman : Ben Bernanke Chairman of the Federal Reserve : Janet Yellen

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Key Economic Terms Deficit – difference between what govt takes in (taxes) and what it spends annually Difference must be borrowed…aka deficit spending Debt – accumulated $ govt owes from yrs of borrowing to pay off annual deficits Owed to people, co’s, state/local govts, foreign govts Debt Ceiling – cap on amt of debt fed govt can borrow Interest – rate paid on borrowed money

Key Economic Terms Surplus – take in more than spend Subtracts from total debt Inflation – rate of increase in the price of goods and services over a given period of time Dollar buys less Stagflation – inflation, high unemployment, and stagnate economy Recession – an economic downturn, slow business activity

GW Bush & Obama May 2001 – 1.35 trillion in tax cuts over 10 years, benefit wealthy 9/11, War on Terror, Katrina, Rising Oil, Mortgage Crisis/Banking Crisis & Bailout Cuts + Spending = Debt increasing ~ $4 billion /day Debt increasing ~ $4 billion /day Inherits 2 Wars & Econ Crisis Tax cuts for low & middle income, close corporate tax loopholes, increase taxes on rich ($1m = 30%: Buffett Rule), tax credits to small businesses & US manufacturers to stimulate growth

The National Debt Today ~19 Trillion 2010 = $414 Billion Interest Alone Who’s paying? See cartoon…

Sub-Prime Mortgage crisis Listen to NPR report “Global Pool of Money Got Too Hungry” and complete guided listening worksheet = = Global Pool of Money? Mortgage Loans? Foreclosures? It was “Too Big to Fail” “Too Big to Fail”“Too Big to Fail”

Domestic Fallout? Housing Prices Decline Foreclosures Rising Unemployment Loss retirement/pension Auto industry decline Investors withdraw from stock market, move to commodities Further tumble in stock values Banking Crisis Bank & Lending House failures (write off losses) Bear Sterns & Lehman Bros bankruptcy (no $ to cover) Govt Bailout Troubled Asset Relief Program (TARP) - Up to $700 b in distressed assets - Up to $700 b in distressed assets Stability, confidence, reform

Global Impact? Money is global – invested all over Economies slow as credit tightened, internatl trade declines Drop in US demand hurts rising economies Loss investor confidence hurts global markets Lower interest rates = weaker dollar = declining profits for trade partners

Political Cartoons In order to analyze the global impact of the crisis, we are going to work in small groups to evaluate a series of political cartoons. Labels: Identify or name certain things in their cartoons so that it is apparent what the things represent. Symbolism: Use simple objects to represent larger ideas or concepts. Analogy: Compare a simple image or concept to a more complex situation, in order to help the viewer understand the more complex situation in a different way. Irony: Highlighting the difference between the way things are and the way the cartoonist thinks they ought to be.

Main ideas Economies are so interconnected that failure of bullish US economy led to a series of global events. US economy has the power to destroy the entire global economy. With collapse of US economy, China remains as leading power. Global panic when their market shows slight weakness. In the end, the US public will pay for Wall St errors in one way or another (higher taxes, or increased price consumer goods)

Subprime mortgage crisis Lessons Learned? Learned Wall Street Recovery Market up, individual profits not Big Banks Are Back & Bigger Than Ever Dodd-Frank reform barely enacted, No accountability for Big 6 Main Street Stagnant Investor losses, Unemployment Debt is dangerous Personal & Governmental

Closure How does knowing all of this information impact you? Why is it important to know?

Homework Mini Quiz tomorrow Beginning new unit…. R.J. 2.1

Debt Ceiling Crisis (‘11) US debt situation: - U.S. Tax revenue: $2,170,000,000,000 - Fed budget: $3,820,000,000,000 - New debt: $ 1,650,000,000,000 - National debt: $14,271,000,000,000 - Recent budget cut: $ 38,500,000,000 Let's remove 8 zeros and pretend it's a household budget: - Annual family income: $21,700 - Money the family spent: $38,200 - New debt on credit card: $16,500 - Outstanding balance on credit card: $142,710 - Total budget cuts: $385