Priyanka Ahuja IB1816308

Payal garg IB1816309

Himani kumawat IB1816359
Sumita sheerin IB1816316
Insiya kachwalla IB1816320
Tanvi parekh IB181636312
 WHAT IS PRIME LOANS AND SUBPRIME
LOANS?

• PRIME LOANS : These are the loans offered to borrowers with good
credit histories and carry lower interest rates.

• SUBPRIME LOANS : These are the loans offered to borrowers with

bankruptcies, defaults or late payment histories.
HOW DID THE SUBPRIME CRISIS SPREAD?
• 2000 – 2005 :

- Very low interest rates, property prices were on a rising trend and the
subprime borrowers were able to meet their obligations by selling the
properties or getting the properties refinanced.
- This created the “Housing Bubble.”
• 2005-2006:

- The housing bubble burst during this time, triggering the crisis.
- There was a steep fall in housing prices.
- The interest rates on subprime loans however were high and were
rising.
- The subprime borrowers were not able to meet their liabilities leading
to meltdown of the US subprime industry.
• 2006-2008 :

- More subprime borrowers failed to pay their debts.

- Securities held by mortgages lost value globally.
- Global investors also drastically reduced purchases of mortgaged-
backed debt and other securities.
• The global recession of 2008-2009:

- Concerns about the US credit and financial markets lead to tightening

credit around the world and slowing economic growth in the US and
Europe.
- The US entered a deep recession, with nearly 9 million jobs lost
during 2008-2009.
- This recession was second to only “The Great Depression of the
1920’s” resulting in huge losses.
 THE MAIN PLAYERS

• The Federal Reserve

• Commercial Banks
• Homebuyers
• Investment Banks
• Investors
 IMPACT ON USA
• In March 2008, Bear Stearns, an investment bank was acquired by J.P.
Morgan Chase, a commercial bank for US$ 1.2 billion.
• In September 2008, Lehman Brothers declared bankruptcy.
• Merrill Lynch, an investment bank was acquired by Bank of America for
US$ 50 billion.
• Washington Mutual was closed by the US Government. Its assets were
sold to J.P. Morgan Chase for US$ 1.9 billion.
• Dow Jones faced it largest decline ever, while S&P 500 hit a 8.8% drop.
 IMPACT ON INDIA
• 15% of the total export was direct towards USA in 2006-2007.
• Exports dropped to US$ 1.5 billion in November, 2008 from US$ 12.7
billion a year ago.
• Manufacturing sectors like leather, textile, gems and jewellery got hit
hard.
IMPACT ON INDIAN STOCK MARKET
BSE “SENSEX” PERFORMANCE IN 2008
 DOMINO EFFECT ACROSS THE WORLD

• Stock markets tanked

• Many banks, mortgaged lenders, real estate investment trusts and
hedge funds suffered significant losses.
• Credit got tighter
• Effect on jobs
THANK YOU!