1. Sub-primes and the Credit Crisis
PLS/EC 480 Greed and Need
Dr. Emerson 2010

2. The Great Depression Stock Market Crash Bank capital reserve lost
Decline in market activity
Government inaction
Natural disaster (drought)

3. Regulation FDIC Security & Exchange Commission Glass Steagall
Freddie Mac/ Fannie Mae

4. Deregulation Deregulation of thrifts [Savings and Loans]
No regulation of “derivatives”
Mortgages sold in fractions- precursor of CDO.
Gramm Leach Billey

5. Federal Reserve Bank Policies
Low interest
Sub primes unregulated
No action on defaults
Fed vs. Congress

6. EVIDENCE: Sub Prime Problem
Delinquency rate is 2 tenths of 1 % in 1979
Today 2% (10 times higher): 2,820,000 households and rising.

7. Foreclosures and Sub Prime
Rates of loss by
mortgage type.

8. Default Consequences GAO report: No piggyback and documentation 0%
Piggyback OR little documentation 25-31%
Piggyback AND no documentation = 60%

9. Evolution of Crisis Rotten apple parallel
Sub prime and impact on prime

10. Jobs in the aftermath
2009, 0% job growth

11. OECD
Rate of US recovery versus other industrial democratic countries.

12. Cost of gambling The Credit Crisis by J. Jarvis

13. Break
Be back in 10 minutes for the analysis

14. The Micro Economic and Political Consequences
Bill Moyer’s Report

15. 1930s SAME as today’s crisis
Unregulated market
Commercial and high risk intertwined
Worldwide
Downward spiraling
Income disparities
Weather and environmental factors
And…

16. Differences? Starts as homeowner crisis US a global power
US government reacts with TARP bailout
FDIC protects depositors
No tariffs
OTHER

17. Inside the Meltdown: Bush Administration, TARP 1 and Congress
Matrix of Events

18. Structure Financial reporting No mart to marketing
Accounting regulations
No off shore companies
Intelligible instruments
Reinstate Glass Steagall
Insurance reform
Credit default swaps
End “too big to fail”

19. JONCO and other reforms:
--In Dodd We Trust
(Firefox)

20. National Responsibility
Federal Government

21. What should States do?

22. Citations
Alford, Rob (2003). What are the origins of Freddie Mac and Fannie Mae. Accessed August 28, 2008 at
Bitner, Richard (2008). Inside the Subprime Debacle. U.S. News and World Report. 145 (2) 12.
GAO Report (2007) Briefing to the Committee on Financial Service, House of Representatives. GPO: Washington, D. C.

23. Citations
Jost, Kenneth (2008). Financial Crisis. CQ Researcher 18(18),
Phillips, Kevin (2002). Wealth and Democracy. New York: Random House.
Stigliz, Joseph Freefall: America, free markets and the sinking of the world economy. New York: Norton Press.

24. Q and A