1. The 2008 Financial Crisis

2. Background… Financial Markets Wall Street / Bay Street / NASDAQ
They match people who have money with people who need money.

3. Mortgages?

4. Bad Credit History? The bank shouldn’t loan you the money.
If they do, you will pay a higher interest rate (because of the extra risk they are taking on you..)
These are called ‘subprime’ mortgages

5. Banks
Historically, you would owe your bank loan back to the bank… and they would come after you if you didn’t pay!
However, they started selling these subprime loans… to investors….

6. Investors
Investors like a little extra risk (and a little extra profit for taking that risk)
With Mortgage Backed Securities (stocks backed by subprime mortgages) they either:
would be repayed at a higher interest rate
would have the house reposessed (which is great since houses usually increase in value!)

7. The Problem
Many subprime mortgages were given… (to unreliable customers)
There ended up being an excess of houses on the market….
With excess supply…. housing prices fell!
(They didn’t increase, as the banks and investors thought they would!)

8. Invest $1,000,000?
This buys you a $1,000,000 mortgage backed security.
Someone doesn’t pay their mortgage – no interest…..
What if their house is only worth $300,000?
Your stock falls from $1,000,000 to $300,000!

9. What if a large portion of the nation’s investments are tied up with subprime loan-backed stocks?

11. ‘Inside Job’
2010
Academy Award Winner