1. What Caused the 2008- 2009 Global Recession? “The road to hell is paved with good intentions” And a lot of greed Yuan Chang-Lee Tzuting WANG Chia-Wen TSAI Jorge Seaman

2. Cause of 2008-2009 global recession 1.Loose monetary policy – low interest rates 2.Financial deregulation 3.US housing boom, sub-prime mortgages 4.New, complex, innovative financial products(securitization) 5.Ratings Agencies

3. 1. Loose monetary policy and low interest rates After ‘Dot-com bubble’ and 9/11, FED reduces interest rates from 6.5% in 2000 to 1% in 2003 Printed too many dollars – banks had too much cash Foreigners increased holdings of US Treasury bonds, increasing liquidity. Proceeds mainly went into housing market. 2. Financial deregulation Differente measures for e.g. Securities and Exchange Commission relaxes restrictions on amount of debt which investment banks are allowed to hold, etc… Growth of ‘shadow banking system’ unchecked and unregulated. By end 2006, unregulated banks are bigger than traditional In 2000, President and Congress allow ‘credit default swaps’ to be self- regulated

4. 3. sub-prime mortgages Not enough mortgages to satisfy Wall Street’s demands for derivatives, so riskier loans, second mortgages to finance consumers Interest rates increase suddenly from 1% to 6% so by August 2008, 15% of all mortgages had defaulted Mortgages as % US GDP increased from 45% in 1990 to 73% in 2008. US private household debt represented 127% of personal disposable income by end 2007. By end 2008, US private debt equals 290% GDP 6 million Americans lost their homes House prices fell by 30-40% in 2008, MBS and CDS shown to be worthless pieces of paper 4. New riskier financial products Structured investment vehicle Derivative Mortgage backed securities Credit default swaps

5. 5. Ratings agencies Only 3 Ratings Agencies (Moody’s, Fitch, S&P) = world cartel All the derivatives, CDS, MBS etc., plus all the investment banks (including Bear Stearns and Lehman) had been given AAA ratings as “safe investments” Since 2000, ratings agencies paid by the companies they rated rather than by potential investors 5. Conclusion Recession was due to a series of a multiple factors, not an single and isolated event Market and financial institutions should be regulated Investors should be carefull when investing and assess their options