Book Yoda. Business & Investing.

The assignment should talke about the factors of the global banking crisis, the measure taken and suggested way out of the criris.
Do you have any resource talking about this topic with easy way to understand ? Thanks

read new paper

2009-04-08 07:42:54 by Confused Person

Title: The Sub-Prime Banking Crisis or Ode to the American Consumer (A Perfect Tragedy) Introduction by Professor Scott Fine Presenter: Professor ...

Several people here have claimed that interest rates will rise in response to the current crisis. What logic leads to that conclusion?

I would have thought that interest rates would fall in order to keep some liquidity in the system. Sure, banks may raise interest rates independently of the official cash rates, in order to recoup losses, but that is a dangerous game because it would force the cash rates to keep dropping until some banks could afford to drop and gain market share. I know that over here (Australia) the Reserve Bank threatened to do that last rate drop.

You can probably split 'interest rates' into two categories - one for the rate 'set' by the RBA and one for the rate that banks offer.

The RBA 'sets' interest rates to try and influence the global and domestic demand. An example

a. Raising interest rates to reduce discretionary spending and tame inflation (since people will need to funnel more money into their loans or people will be more inclined to save due to the higher rates)

Raising rates also pushes up the value of the $AUD, because oversees investors can invest their money in Australia and get a better return.

As for the rates the banks charge - this is generally more than the set level by the RBA. This rate can also increase if wholesale lenders (institutions that the banks borrow off) reduce the money they're willing to lend. A reduced supply of money to lend to lenders, means that it's more expensive for the banks to borrow money - hence they try and recoup costs by increasing their interest rates.

That's the official version anyway. It lends itself as a good excuse for banks to charge more.

2008-09-25 21:02:13 by BH

I want to wire my savings from a foreign country to my Wamu checking account and am afraid that the money could get lost, if the bank goes bankrupt or gets into trouble due to the banking crisis.

Ok, i work at Wamu and what some of these people have said are true but some of the information is incorrect. Miachel R is partly correct with the FDIC insurance but there is more to 100,000 FDIC insurcance. Your money at Wamu, even in the situation we are in, is ok. They only thing that would happen if one of the banks started bidding on wamu and we got bought out the only thing that would change is the name of the bank. You accounts would not change at all. Wamu itself can NOT fail we have over 182 Billion dollars in deposit and of 50 Billion in liquidity. And FDIC has over 450 Billion dollars ready if something like that did happen. But believe me because we have that large of deposit base and that much in liquidity, there is no way it can fail...we can merge but we can not fail as a bank. Now the whole FDIC thing, yes FDIC insures 100,000 PER OWNERSHIP. Its not all about how much money you have in the bank its all about ownership. For example let say i have an account that is a single owner and it has 200,000 in it. Ok, im over FDIC because a SINGLE OWER has over 100,000 in ONE account. But lets say i add my girlfriend as a CO-Owner. That ONE account that has 200,000 in but now has 2 OWNERS, is now insured by FDIC. Because on that one account FDIC insures me for 100k and my girlfriend 100k. So because we both now own that account they insure all of the 200k. Hope i helped

2008-09-25 09:35:21 by ?

Do you think this change in the stock market is related to the downturn in banking?

2009-03-19 17:03:25 by shuang90740

Is it true that CDS's are to blame for the failure of Lehman Brothers and the near bankrupcy of AIG?

Yes.

As you may remember, the current banking crisis started something like this: Some years ago, banks discovered they could make more money by packaging mortgage loans (called Collateralised Debt Obligations - CDOs) and selling them on to other investors (or other banks) rather than by keeping them to maturity. While in theory these were very sound loans as they were backed by real assets, the incentives on the banks (and bankers on commission) to make more of these deals led them to lower their lending standards (eg 100% mortgages to people who could not service them), while the whole process fuelled a steep and unsustainable rise in property prices.

When prices property eventually started falling and interest rates rose, more and more borrowers defaulted and had their properties auctioned off triggering a viscous circle. So, property prices tumbled. Hence the large losses by financial institutions and the banking crisis..

Credit Default Swaps (CDSs) were one instrument which "allowed" the rating agencies to assign an investment grade rating to these CDOs and created such a huge market for them.

Companies such as AIG, ostensibly relying on the past default history of CDOs insured them against default, ignoring the fact that the securities they were insuring were not the same as the ones on whose history they were basing their assessment (as noted above). The fact that they called these "insurance" contracts Credit Default Swaps allowed them to circumvent the normal supervision and regulation of the insurance industry, and so the size of these contracts outstanding ballooned out of all proportion without anyone overseeing the system. When the bubble burst, the fallout was of such a magnitude that the underwriters of these CDSs could not honour them, and their holders were left with worthless pieces of paper.

2008-12-05 18:42:42 by mantoof a