The Financial Crisis 14 and the Great Recession英文精品课件.pdfVIP

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The Financial Crisis 14 and the Great Recession英文精品课件.pdf

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11/8/2015 The Financial Crisis 14 and the Great Recession 2007–2009, The Great Recession Roots of the Crisis • Start with the 2001 recession and weak recovery • Fed responds by cutting interest rates (FFR = 1%) • Since interest rates move together, mortgage rates fell • Mortgage - A type of loan used to buy a house, which usually serves as collateral for the loan • Low mortgage rates increased demand for housing and led to a bubble • Increase in the price of an asset or assets that goes far beyond what can be justified by improving fundamentals 2 1 11/8/2015 Roots of the Crisis • Low interest rates on Treasuries caused investors to “reach for yield” • Investors bought riskier assets that paid greater interest • Higher demand for junk bonds, mortgage backed securities, etc. pushed up prices and reduced yields • Interest rate spreads compressed • Difference between the interest rate on a risky asset and the interest rate on a risk-free Treasury security 5 Roots of the Crisis • Low interest rates spreads, fewer defaults and delinquencies • Lenders believed the riskier assets were not so risky • Lax regulation • Both encour