1.  Great Recession

2. History  Great Depression  Further Regulation  No Speculating

3. 1980’s  Explosion of Financial Services Industry  Banks went public  WS became rich  Regan appoints Treasury Secretary

4. 1980 – Early 2000’s  Period of Deregulation  Particularly in Savings & Loans  Allows speculation with deposits

5. Charles Keating  American Continental Corporation  Bought Lincoln Savings and Loan  Assets = 1.1Billion – 5.5 Billion (In four years)  Against regulation  Keating 5  Partnered with Alan Greenspan

6. 1990’s  Too big to fail..  Citicorp and Travelers Merger  Too big to fail = Government Bailout  Oil Tanker

7. Dot-Com Bubble  End of 1990’s  5 Trillion in Losses  IBanks promoted companies they knew would fail (Recurring theme…)  Infospace

8. Infospace

9. Deregulation  Led to illegal activity from banks

10. Freddie Mac  Accounting Fraud  Fined $125 Million

11. Fannie Mae  Accounting Fraud  Overstated earnings by $10Billion  Fined $400Million  CEO receives $52 Million in bonuses that year

12. UBS  Helped wealthy Americans evade taxes  Fined $780 Million

13. Deregulation = Derivatives  1990’s deregulation led to boom in derivatives  Could gamble on anything  Derivatives market = $50 Trillion in late 1990’s  All unregulated  Greenspan + Summers wanted to keep derivatives unregulated

14. Derivatives Market Chart

15. Leverage and Leverage Ratio

16. Loans then  Typically the loan involved only two parties  Small bank and individual  Mortgage payments given directly to bank  Bank held mortgage until maturity  Self-fulfilling regulation

17. Loans Now

18. Growth in Lending

19. Growth in Subprime Lending

20. CDO  Collateralized Debt Obligation  Similar to MBS, just other structured debt  Sold to investors  Offsets risk  Exploded before crisis

21. CDO Issuance

22. CDS  Transfers credit exposure  From one party to next  Buyer makes payments to seller  Default gives buyer premium and IR to maturity

23. CDO Goldman Sachs  Goldman purchases CDS  Bets against own CDOs  $22Billion in CDS from AIG  More customers lost, more Goldman gains

24. Growth in CDS

25. Growth in MBS

26. Rating Agencies  Biggest rating agencies were Fitch, S&P, and Moody’s  They made money off of rating credit  The more AAA ratings they gave, the more $$  Toxic loans received AAA  Lehman rating  Court response

27. Revenue of Big 3

28. Ratings Downgrades

29. Consumer Credit

30. Home Prices

31. WS Exorbitance  Became “pissing contest, who’s was bigger?”  Lehman owned 6 jets (One a 767)  Escorts

32. Wall Street Bonuses

33. Delinquency Rates

34. Foreclosures and CDO collapse

35. Who fell?  Bear Sterns  Fannie & Freddie (Rated AAA day before takeover)  Lehman  Meryl Lynch

36. US Failed Banks

37. Commercial Papers Collapse

38. Thank you!