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SUBPRIME CRISIS

Causes of subprime crisis

Boom of housing in 2000


Lowered credit Quality (rise from 8% to 20%)
Adjustable rate mortgages(80%).
Attractive rate of returns offered by MBS and
CDOs.
Fed short term interest rate cuts(6.5% to 1%)
Debt to disposable personal income (rise from
77% to 127%)
Decline of housing prices in mid 2006.

Impact of subprime crisis


9 million job lost in 2008-2009
40% of 2007 GDP was lost
Between Jan to Oct 2008 US stock market
suffered a loss of $8 trillion
Lehman Brother filed for bankruptcy protection on
Sept 15,2008.

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