Your Cheat Sheet for "The Big Short" - Third Way. Introduction The big financial meltdown is finally getting its star turn on the big screen with the release of The Big Short. Based on Michael Lewis’s New York Times bestseller by the same title, the film tells the story of six contrarian traders who sniffed out the housing crash before virtually anyone else.
Their foresight helped them make gobs of money while Wall Street institutions crumbled. Michael Burry, who is portrayed by Christian Bale in the movie, made $750 million in 2007 alone because of the bets he made.1 The film is earning rave reviews and mentions of Oscar nominations, but it’s even better if you understand the wonky details behind the plot. 1. The linkage between Wall Street and Main Street was, for the most part, established when the finance industry created securitization in the 1970s and was mass-commercialized in the 1980s by the now defunct Salomon Brothers.2 Today, almost 75% of mortgages issued are securitized.3 Securitization works like this. 2. 3. Denouement. Gorton. Subprime mortgage crisis - Wikipedia. The U.S. subprime mortgage crisis was a set of events and conditions that were significant aspects of a financial crisis and subsequent recession that became manifestly visible in 2008.
It was characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages. These mortgage-backed securities (MBS) and collateralized debt obligations (CDO) initially offered attractive rates of return due to the higher interest rates on the mortgages; however, the lower credit quality ultimately caused massive defaults.[1] While elements of the crisis first became more visible during 2007, several major financial institutions collapsed in September 2008, with significant disruption in the flow of credit to businesses and consumers and the onset of a severe global recession.[2] When U.S. home prices declined steeply after peaking in mid-2006, it became more difficult for borrowers to refinance their loans.
U.S. Causes[edit] Virtuous circle and vicious circle - Wikipedia. From Wikipedia, the free encyclopedia Self-reinforcing sequence of events A vicious circle (or cycle) is a complex chain of events that reinforces itself through a feedback loop, with detrimental results.[1] It is a system with no tendency toward equilibrium (social, economic, ecological, etc.), at least in the short run. Each iteration of the cycle reinforces the previous one, in an example of positive feedback.
A vicious circle will continue in the direction of its momentum until an external factor intervenes to break the cycle. A well-known example of a vicious circle in economics is hyperinflation. When the results are not detrimental but beneficial, the term virtuous cycle is used instead. Examples[edit] Vicious circles in the subprime mortgage crisis[edit] The contemporary subprime mortgage crisis is a complex group of vicious circles, both in its genesis and in its manifold outcomes, most notably the late 2000s recession.
Designing ecological virtuous circles[edit] Other[edit] Subprime mortgage crisis - Wikipedia. The Shadow Banking System. Photo courtesy of FinancialAidPodcast (via flickr) A major player in the CMO market was the so-called “Shadow Banking System,” a collection of financial institutions including investment banks, hedge funds, money-market funds, and finance companies, as well as newly invented entities called “asset-backed conduits” (ABCs) and “structured investment vehicles” (SIVs). Since shadow banks were not part of the formal commercial banking system, they were not subject to the same strict regulations as banks, and thus could use high leverage to gain quick and large profits in good times but also huge losses in bad times.
On April 28, 2004, the US Securities and Exchange Commission waived the net capital rule for the largest investment banks: Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley, allowing them to take on as much debt as their internal risk management analyses deemed prudent. . [ next section: The Collapse ] Footnotes: The 2007-08 Financial Crisis In Review. When the Wall Street evangelists started preaching "no bailout for you" before the collapse of British bank Northern Rock, they hardly knew that history would ultimately have the last laugh. With the onset of the global credit crunch and the fall of Northern Rock, August 2007 turned out to be just the starting point for big financial landslides. Since then, we have seen many big names rise, fall, and fall even more. In this article, we'll recap how the financial crisis of 2007-08 unfolded. (For further reading, see Who Is To Blame For The Subprime Crisis?
, The Bright Side Of The Credit Crisis and How Will The Subprime Mess Impact You?) Before the BeginningLike all previous cycles of booms and busts, the seeds of the subprime meltdown were sown during unusual times. In 2001, the U.S. economy experienced a mild, short-lived recession. This environment of easy credit and the upward spiral of home prices made investments in higher yielding subprime mortgages look like a new rush for gold. Financial Crisis 2007/2008 Overview | Wall Street Oasis... Recommended Reading List The financial crisis of 2007/2008 was the largest and most severe financial event since the Great Depression and reshaped the world of finance and investment banking. The effects are still being felt today, yet many people do not actually understand the causes or what took place.
Below is a brief summary of the causes and events that redefined the industry and the world in 2007 and 2008. The History The underlying cause of the financial crisis was a combination of debt and mortgage-backed assets. Since the end of WW2, house prices in the United States have been steadily rising. There have been a few fluctuations but the trend has been upward. In the 1980s financial institutions and traders realized that US mortgages were a previously untapped asset. The Causes In the late 1990s and early 2000s, there was an explosion in the issuance of bonds backed by mortgages, also known as mortgage-backed securities (MBSs). The Run Up Lehman Brothers The Fallout. 200936pap. Investor presentation. Investor presentation. Net Interest Margin | 15990. Watertown Savings Bank Financial Reports. WSB Municipal Bank in city_name, state_name - Detailed Financial Reports, Location.
Carthage Federal Savings and Loan Association in city_name, state_name - Detailed Financial Reports, Location. Analyzing A Bank's Financial Statements. Financial statements for banks present a different analytical problem than statements for manufacturing and service companies. As a result, analysis of a bank's financial statements requires a distinct approach that recognizes a bank's unique risks. Banks take deposits from savers and pay interest on some of these accounts. They pass these funds on to borrowers and receive interest on the loans. Their profits are derived from the spread between the rate they pay for funds and the rate they receive from borrowers. This ability to pool deposits from many sources that can be lent to many different borrowers creates the flow of funds inherent in the banking system. Leverage and Risk Banking is a highly-leveraged business requiring regulators to dictate minimal capital levels to help ensure the solvency of each bank and the banking system.
As one of the most highly regulated banking industries in the world, investors have some level of assurance in the soundness of the banking system. WATERTOWN SAVINGS BANK Review - Credit Union Reviews. 111 CLINTON STREETWATERTOWN, New York 13601 Predictive Indicator neutral As of March 31, 2016 Federal Reserve System Identifier 298218 (Based on data from the previous quarter.)
U.S. commercial banks are chartered under either federal or state jurisdiction for the purposes of accepting funds for deposit and extending loans to either individual or business borrowers. Banks are subject to credit, interest rate, and operational risk, and, because of both their public purpose and their importance to the nation’s economy, banks become the object of intense regulatory scrutiny. U.S. thrift institutions are chartered under either federal or state jurisdiction for the primary purpose of utilizing deposited funds to issue loans secured by real estate. Currently, real estate-backed loans account for approximately 42% of total thrift industry assets, and one-to-four family residential mortgages comprise nearly 59% of the industry’s real estate loan portfolio. Earnings Highlights Capital highlights.