PowerPoint Presentation

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Presented to International Business ClassInstructor: Sir Imran BashirWorld Recession 2008The Institute of Management Sciences3

Presented by:Muhammad Asad Bin Asif ID: 113245Muhammad Zeeshan AzamID: 123220Hassan ShafiqID: 123218

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Opening CaseThe Iceland Scenario

Iceland was stable Multinational corporations: Alcoa installed their business Icelands various provision deregulationsPrivatization of banksLax requirement on bank loansThree the largest banks combined to borrow 10 times Iceland's total GDP The Institute of Management Sciences5

Operations of Banks

Jon Asgeir Johannesson, Borrowing billions of dollarsJon purchased yacht and a private jet invested outside iceland Iceland being drained of financial resourcesShockBanks got BankruptMarket crashedThe Institute of Management Sciences6

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BackgroundDuring the forty years of economic growth in the United States, investment banks were small Investment banks going publicFinancial sector progressed From 1978-2008, the average salary in investment banking increasedThe Institute of Management Sciences9

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Reagan Administration of U.S.Financial deregulation U.S. in early 1980s In Late 1980s workers of financial sector were going to jail During 1990s,internet stocks worth to $5t - were lost.Eliot Spitzer, investigation internet crisisInvestment banks promoting stocks likely to failTen investment banks outside settlement of $1.4b

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Financial EngineeringA new field of study Derivatives developed A well-known derivative is an optionInvest options trade options

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Collateral Debt ObligationsThere are five positions, in sequential order in the chain.

Home buyerslendersInvestment banksInvestorsInsurance companies

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The largest financial bubble in history.Countrywide Financial issued nearly $100b in mortgage loans.Traded debts through securitization chain and earning massive sumsThe Lehman Brothers, Richard Fuld, given $500m in bonusesThe Institute of Management Sciences16

Martin Wolf, Chief Economics Commentator for The Financial Times adds

It wasnt real profits, it wasnt real income.Two, three years down the road theres a default its all wiped out. I think, in recollection, its been a great bigglobal Ponzi scheme. The Institute of Management Sciences17

The Investment Bankers and InsuranceAIG promised to cover the costs on the insured CDOsThey did not have the money to do so.Paying over $3b in corporate bonuses during this period. Investment bankers spent on luxury: jets, yachts, mansions, and vacation homes, as well as drugs.The Institute of Management Sciences18

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The CrisisThe Institute of Management Sciences20

The Federal Reserve System ignored warnings fromRaguram Rajan of the IMFDomnique Strauss-Kahn of the IMF,Nouriel Roubini of New York UniversityAllan Sloan of Fortune Magazine.

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Accountability of the Loss recordedLehman Brothers reports recorded losses and stock collapse. Numerous investment firms rated double and triple A before collapseThe risky mortgages ripped to bankruptcies. Bear Stears acquired by J.P. Morgan: 2 dollars per share. Fannie Mae and Freddie Mac, acquired by the US government

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After Crisis Effects:The United States declined, through wealth gaps and outsourcing.Manufacturing jobs were diminishing Chinas unemployment hiked Information technology jobs were abundant; but required educated peopleTax policies in U.S. favored the wealthyWealth inequality was the highest in the United States

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Resources

Junk Mortgages under Microscope by Allan Sloan Fortune Magazine October 16, 2007

Has Financial Development made the world Riskier by Raghurar G. RajanWhy Central Banks Should Burst Bubbles by Nouriel RoubiniWhos holding the Bag? May 2007 Pershing Square Capital Management, L.P.Inside Job a Documentary film by Andri Magnason

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Any Question

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