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27 Cards in this Set
- Front
- Back
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Timeline of key events: August 2007 |
crisis appears in financial markets - credit markets (money markets) |
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March 2008 |
Bear Stearns |
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June 2008 |
Timothy Geithner speech in London - shadow (unregulated) markets |
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Week of Sept. 7, 2008 |
Fannie Mae and Freddie Mac taken over |
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Week of Sept. 14, 2008 |
Lehman Brothers bankruptcy Merrill Lynch sale announced AIG liquidity crisis Reserve Primary Fund problems TARP plan need announced |
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Week of Sept. 21, 2008 |
Goldman Sachs and Morgan Stanley to seek bank-holding company status U.S. Congress begins debating TARP Washington Mutual fails and is sold Wachovia attempts to sell Citigroup |
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Week of Oct. 5, 2008 |
Announcements in Iceland, Denmark, Germany, Greece, Netherlands, France and UK Federal Reserve announces commercial paper funding facility On Oct. 8 unprecedented coordinated int. rate cuts announced by central banks in the U.S, UK, Europe, Canada, Sweden, and Switzerland More stock market losses Global financial leaders meet in DC |
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Week of Oct. 12, 2008 |
TARP emphasis changed to making direct equity investments in banks |
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Week of Nov. 2, 2008 |
Obama elected
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Week of Nov. 16, 2008 |
G-20 leaders meet in Washington |
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Week of Dec. 29, 2008 |
President Bush decides against his own party to provide money to GM and Chrysler |
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Capital
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funds invested in ownership or equity shares of for-proft corporations, fin'l institutions, structured investment vehicles |
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Asset-Backed Securities
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debt instrument or security w/ either tangible or intangible assets pledged as collateral
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collateralized debt obligations (CDOs)
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debt security collaterized by a pool of assets owned by the financing entity. The pool of assets could be a portfolio of mortgage, car, student loans or credit card receivables
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credit crunch
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situation when comm banks are less willing to make loans b/c a) diff btwn their cost of funds and the int. rate they can earn on loans to biz doesn't cover risk for loans, b) avail. funds to comm banks limited b/c other comm banks are less willing to loan to other banks
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credit derivatives
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linked to assets w/ credit risk. Includes credit default swaps, credit options, credit swaps, credit-linked notes. Notional principal of this class of derivatives is est. to have grown into $T during the 10 years from 1998-2008
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Derivatives
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fin'l instruments designed to hedge risk (int. rate risk, bond price risks, credit default risks) w/ structures like swaps, forward, futures and options --> some are public/regulated, some are private/unregulated
If derivates are used to speculate they can lead to losses Fannie Mae Federal National Mortgage Association Created 1938 during Great Depression Problems in 07-08 --> gov't created Federal Housing Finance Agency that took Fannie Mae back over in Sep. 2008 |
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Financial Crisis
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A major disruption in fin'l mkts caused by inc. in adverse selection and moral hazard problems that prevent fin'l mkts from channeling funds to ppl w/ productive investments opps, leading to a sharp contraction in economic activity
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Freddie Mac
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created and immediately sold to stockholders in 1970 as competition for Fannie Mae, taken over by Federal Housing Finance Agency in Sep. 08
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Gramm Leach Bliley Financial Services Modernization Act of 1999
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repealed certain provision of the Glass-Steagall Banking Act of 1933, which legally separated comm banking functions from investment banking functions,corporate finance advisory and other securities industries
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Hedge Fund
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Avoid gov't regulation by having several characteristics:
a) v. high min. investments amounts (@ least $100,000) b) limited # of investors (99-499) c) investors must meet certain min. annual income/net worth req. d) req. for LT investments e) many organized as limited partnerships f) many of 4,000 hedge funds organized outside US to avoid regulation |
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Keynesian/New Keynesian Economics
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Mkts sometimes fail to achieve full employment and wages/prices do not always adjust efficiently to changes in supply/demand factors
Can be valuable for gov't to use fiscal & monetary policy to inc. total demand in economy |
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Margin
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proportion of equity capital employed in a company's capital structure relative to debt capital employed
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Securitization
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process of creating a special entity to purchase a pool of fin'l assets and finance purchase of the pool by selling debt securities collateralized by the pool of assets
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Structured Investment Vehicle
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Financing entity created off balance sheet by another entity that purchases one or more pools of fin'l assets and finances purchase of asset pools by issuing/selling debt and equity securities, usually more debt than equity
Considered part of Shadow Banking System |
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Systematic Risk
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Risks imposed by interlinkages/interdependence in a system or mkt, where the failure of one entity or cluster of entities can cause a cascading failure |
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TED spread
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Diff btwn int. rate on London Interbank Offered Rate deposits and 3-month US T-Bills. Normally commercial banks invest more in LIBOR deposits than US T-Bills --> normally low TED spread |
