FM final ppt slides on 2008 crisis .pptx

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1. Presented By: Sapna Fayaz, Arham Hanif, Areen Azeem, Abeeha Ali & Mahnoor Shehzadi

2. Table of Content Introduction Background Causes of the crisis Timeline of the events Impact of the Crisis Responses to Crisis Case Studies Who was to blame Lessons Learned Conclusion and recommendations

3. Introduction – What Was the 2008 Global Financial Crisis? Biggest economic crises since 1930s. Started in the USA spread globally. Banks failed, people lost jobs & homes. Businesses closed down. World economy was deeply affected.

4. Background – Global Conditions Before the Crisis Global economy was growing Banks were giving easy loan Interest rates were very low People borrowed & spent a lot US housing prices were rising fast But hidden risks were building up

5. Subprime Mortgages – The Heart of the Crisis Mortgage = loan to buy a house Subprime = risky loans to people with low income or bad credit Banks gave too many subprime loans Belief: housing prices will always rise Many people couldn’t repay This triggered the crisis

6. The U.S. Housing Bubble and Its Burst Housing prices rose too high (bubble) Everyone was buying homes Banks gave loans even to those who couldn’t afford In 2006–2007, bubble burst Prices fell, people owed more than home value Many homes were taken back by banks The housing market crashed

7. Financial Products – How the Risk Spread Globally MBS (Mortgage-Backed Securities) bundled risky home loans. CDOs created layers (tranches) from MBS — sold globally. AAA ratings given to toxic securities. Credit Default Swaps (CDS) used to speculate, not insure .

8. Causes of the Crisis Excessive Risk-Taking in Financial Institutions Banks took risky bets for higher returns Ignored long-term consequences Lax Regulation and Oversight U.S. SEC failed to monitor banks’ risky practices Government allowed "too big to fail" mentality Role of Credit Rating Agencies Rated toxic assets as AAA Conflict of interest – paid by issuers of securities Leverage and the Shadow Banking System Banks borrowed heavily (high leverage) Shadow banks operated without strict regulation Bursting of the Housing Bubble House prices fell Borrowers defaulted → MBS collapsed → global panic

9. Timeline of Events (2007–2009) Chronology of Crisis 2007 : Mortgage delinquencies rise 2008 : Bear Stearns collapses; Lehman Brothers goes bankrupt 2009 : Global recession deepens Key Events Lehman Brothers bankruptcy AIG bailout U.S. stock market crash Emergency responses by central banks

10. Impact of the Crisis Economic Recession (Global and U.S.) Deepest recession since 1930s Global GDP shrank U.S. unemployment peaked at 10% Impact on Financial Institutions Banks failed or merged Trillions lost in market value Job Losses and Social Effects Millions lost jobs and homes Rise in poverty and depression Impact on Developing Economies Foreign investment dropped Export-based economies hit hard Pakistan, India, Brazil faced inflation and unemployment

11. Responses to Crisis Government Bailouts U.S. launched the $700 billion TARP bailout AIG, banks, and automakers received emergency funds The Role of Central Banks Federal Reserve slashed interest rates Introduced Quantitative Easing (QE) Injected liquidity to stabilize financial markets Policy Responses Dodd-Frank Act : U.S. law to reform Wall Street New rules for transparency, risk, and capital Similar reforms introduced globally

12. Case Studies: Lehmann Brothers Key Points: Was one of the largest investment banks in the U.S. Invested heavily in mortgage-backed securities (MBS) Had too much debt and not enough cash Declared bankruptcy on September 15, 2008 Its collapse triggered a global financial panic No bailout was offered by the U.S. government Lesson : Even big institutions can fail if risk is mismanaged

13. AIG (American International Group) A global insurance company Sold Credit Default Swaps (CDS) — a type of insurance on bad loans Didn’t have enough money to cover losses Received a $180 billion bailout from the U.S. government Saved to prevent more damage to the economy Lesson : Lack of understanding and preparation for risks can destroy large companies

14. Bear Stearns A major investment bank One of the first to suffer due to the housing market collapse Had invested in high-risk mortgage assets Was near bankruptcy in March 2008 Was bought by JPMorgan Chase at a very low price with government support Lesson : Early warning signs were ignored, and poor investments led to collapse

15. Conclusion and Recommendations Summary of Findings Crisis caused by greed, bad loans, and weak oversight Impacted banks, jobs, and economies worldwide Recommendations Strengthen regulations Improve financial education Ensure accountability for risky practices Final Thoughts The 2008 crisis was a global lesson Future depends on transparency, caution, and reform

16. THANK YOU!