Hello everyone, my name is Munny Akter Khan.

I am going to present the other two factors which

causes the great recession.

Economics Presentations ……………….

The Factors

Risky Wall Street behavior

Along with offering mortgages, lenders discovered another method to profit from the real estate
industry: securitization, which involves packaging subprime mortgage loans and reselling them.

Subprime lenders packaged loans together and sold them to investment banks, who then marketed
them to investors all over the world as mortgage-backed securities (MBS).

Eventually, investment banks began repackaging and selling mortgage-backed securities as collateralized
debt obligations on the secondary market (CDOs). These financial instruments integrated many loans of
various quality into a single asset, which was then separated into portions, or tranches, each with its
own risk profile appropriate for different sorts of investors.

The premise, supported by extensive Wall Street mathematical models, was that the variety of
mortgages lowered the risk of CDOs. The fact, however, was that many of the tranches had low-quality
mortgages, which dragged down the portfolio's overall profits. To purchase CDOs, investment banks and
institutional investors all around the globe borrowed large sums at low short-term interest rates.

To further complicate matters, banks employed credit default swaps (CDS), another financial derivative,
to guarantee against CDO defaults. In unregulated trades, banks and hedge funds began purchasing and
selling swaps on CDOs. Furthermore, because CDS transactions did not appear on institutions' balance
sheets, investors were unable to analyze the true risks that these businesses had incurred.

The 2008 stock market crash

The CDO fiasco had escalated into a full-fledged credit crisis by the spring of 2008. Because it
was unknown where all these toxic securities were and whose balance sheets were housing
them, banks began charging exorbitant interest rates to lend to other banks and institutions.
It was especially bad for Lehman Brothers, an investment bank. In actuality, CDS was meant to
cover $400 billion of the $600 billion in debt held by the business. Unfortunately, the loan had
depreciated to the point that it was nearly worthless.
When Lehman Brothers declared bankruptcy on September 15, panicky banks stopped lending
nearly entirely, leaving the whole global banking system in a state of financial distress.
The stock market reacted with a vengeance. The Dow Jones Industrial Index fell into free
collapse from September 19 to October 10, 2008, losing 3,600 points.
During that time, major financial firms began to suffer losses:

Merrill Lynch was purchased by Bank of America (BAC).

The Federal Deposit Insurance Corporation (FDIC) seized Washington Mutual, the nation's
largest savings and loan, and transferred its assets to JPMorgan Chase.
Goldman Sachs and Morgan Stanley, the last two large investment banks still operating,
changed to bank holding corporations to qualify for federal bailout funds.
International trade and industrial production decreased at a quicker rate than during the Great
Depression of the 1930s as the global economy declined. Companies began huge layoffs as
consumer and business confidence was shaken, and worldwide unemployment soared.