SubPrime Crisis

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Sub-prime Crisis

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I NTRODUCTION What is sub-prime lending? How basically we define subprime crisis? What this did to the $1.5 trillion US housing industry?

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B rief h istory How and when did the subprime mortgage crisis begin? When did the slide begin? HOW SUB PRIME CRISIS SPREAD? Did it cause business failure?

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HOW SUB PRIME CRISIS SPREAD? FINANCIAL INSTITUTION RMBS SECURITISATION LOWEST RISK / HIGHEST RATING ( SENIOR ) MEDIUM RISK ( MEZZANINE ) HIGHEST RISK / ( EQUITY ) CDO PROCEEDS SALE of LOAN INVESTORS BANKS HEDGE FUNDS INSURANC E COS . PENSION FUNDS LOAN SUB-PRIME BORROWER BUYING HOME SUB-PRIME LENDER

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Comparison between Traditional & Sub prime model.

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A D omino E ffect What is Domino Effect? “ Finally, you have broader considerations that might follow what you would call the ‘falling domino’ principle. You have a row of dominoes set up, you knock over the first one, and what will happen to the last one is the certainty that it will go over very quickly. So you could have a beginning of a disintegration that would have the most profound influences. ” -- Dwight D. Eisenhover, (former US President)

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A C ase Of H ollow A ssets

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T he P articipants Of The C risis Lenders : The Biggest Culprits Investment Banks Homeowners Government and regulators Investor Behavior Hedge Funds

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Lenders : The Biggest Culprits

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Investment Banks

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I MPACT ON W ORLD E CONOMY GLOBAL MARKETS 16TH JULY(BEFORE) 17TH AUGUST(AFTER) CHANGE % FALL DOW JONES 13950.98 13079.08 -871.9 6.249 NASDAQ 2697.34 2505.03 -192.31 7.129 BSE SENSEX 15311.22 14141.52 -1169.7 7.639 HANG SENG 22953.94 20387.13 -2566.81 11.182 KOSPI COMPOSITE 1949.51 1191.55 -757.96 38.879 NIKKIE 225 18217.27 15273.68 -2943.59 16.158 WEIGHTED INDEX 9417.32 8090.29 -1327.03 14.091 SHANGHAI INDEX 3896.19 4656.57 760.38 19.515 FTSE 100 6697.7 6064.2 -633.5 9.458 DAX() 8105.69 7387.29 -718.4 8.862 CAC 40 () 6125.6 5363.63 -761.97 12.439 IBOVESPA() 57374 48558.76 -8815.24 15.364

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I MPACT ON THE I NDIAN E CONOMY Liquidity crunch in the Economy Correction of Prices Rupee Appreciation & Slump in Economic activity

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Staff cuts Losses to Banks Short-term impact on the stock markets

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L earning's F rom The C risis Sound banking practices Controlled derivatives market One of the wrong lessons that could be learnt from the sub-prime episode is about securitization.

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Limited investment by Indian companies abroad. Quality inward investment. Reputation risk is as real as credit risk. Financial institutions can’t afford to be shortsighted Failure to anticipate impact

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Thank You

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