Crash Of Housing Bubbles And

Recession In UK

By:
Supriya Narayan(Roll No-150)
Tajinder Singh(Roll No-158)
Tanvi Kanchan(Roll No-160)
Vikas Tripathi(Roll No-)
Gagandeep Chhabra(Roll No-)
 THE GREATEST MARKET
CRASHES AND BUBBLES
1. A crash is a significant drop in the total value of a
market
2. It is a situation wherein the majority of investors are
trying to flee the market at the same time and
consequently incurring massive losses.
3. Attempting to avoid more losses, investors during a
crash are panic selling, hoping to unload their
declining stocks onto other investors.
4. This panic selling contributes to the declining
market, which eventually crashes and affects
everyone.
 What is an Economic Recession?
☒ This occurs when there is a significant decline in
the economy which usually lasts for months.
☒ This is visible in terms of consumer spending,
employment, industrial production, real income
and wholesale trade.
☒ Experts say that an economic recession is normal
because it is part of the business cycle and things
usually improve within 16 to 18 months.
Few of the significant symptoms of
an economic recession are
 Many businesses across all sectors suffer a serious decline in sales
turnover and their profits shrink.
 Borrowers default on repayment of loans and credit card liabilities.
 Banking system breaks down as borrowers are not in a position to
repay loans.
 The rate of job loss becomes far too alarming.
 Prices of food, fuel and other essential
commodities shoot up .
 Companies offer voluntary retirement programs
to reduce their workforce and cut wages
 People foreclose their fixed-term deposits, and
sell off other assets to meet their day-to-day
expenses.
 Current Global Financial Crisis
☒ The World Economy is Mired in the Worst
Financial Crisis Since the Great Depression.
It All Start in U.S:-
☒ Boom in Housing Sector.
☒ Collapse of banks & financial institutions
☒ Freezing of Liquidity
☒ Ripple Effect in all over the world
 Fundamental miss pricing in the capital markets
 Continue….
cont
Plus the failure to control poor
•

underwriting standards in the

mortgage markets means no down
payment, no verification of income,
assets, and jobs, interest only
mortgages
 How this started
Housing Sector of America
A combination of Low Interest Rates & Large
Inflows of Foreign Funds Created Easy Credit
Conditions for People to Take Home Loans
☒ Created a BOOM in Housing Sector
☒ This In turn Created Demand for Property &
Fueled the Home Prices
☒ The Greed Factor to Earn More & More Profit
Was Driving Every one During Period of
Housing Market.

☒ Lending to Sub-Prime Market

☒ NINJA (No Income, No Job, No Assets)

☒ Housing Bubble Was Burst Eventually.
☒ Over Building of Houses During The Boom
Period Finally Led to Surplus Inventory of
Homes.
☒ Caused Decline in The Prices of Houses

From Summer 2006

☒ As a Result People Began to Default.

☒ Provided an Incentive to Walkway Then to Pay

the Mortgage.
☒ Foreclosures Increased and During 2007 1.3
Million of U.S Housing Properties were Subject
to Foreclosures.
• Supply of Housing
Inventory Further
increased to such
Extent Nearly 4
Million Unsold Homes
were for Sale Including
2.9 Million That Were
Vacant.
How Housing Crash Caused Global
Economic Depression?
☒ MBS (Mortgage Based Securities)
☒ CDOS (Collateralized Debt Obligations).
☒ Big American & European Banks Bought These
Sub-Prime loan Portfolios From Original
Lenders.
☒ The Problem Which Was to Remain Within The
Confines of U.S.A Propagated into Worlds
Financial Market.
☒ The Problem et Worsened as MBS, Which by
that Time Had Become Part of CDOS of Major
American & European Banks Lost their Value.

☒ Falling Prices of CDOS dented the Banks

Investment Portfolios and Destroyed Banks
Capital.

☒ Inter bank Lending was Stopped

☒ Estimated Loss was $512Billion in Sub-Prime
☒ Largest Hits Take By CITI GROUP(($55.1 Billion)

☒ Merrill Lynch ($52.2

( Billion))
☒ U.S Based Firms Suffered an Over all $260 billion.

☒ While European Firms Suffered ($227

( Billion))
☒ ($24 Million)) By Asian Banks.

☒ Lehman Brothers-File Bankruptcy.

☒ Freddie Mac & Fannie Mae Were Nationalized By

U.S
☒ Banks Stopped Capital Finance

☒ 160,000 People Lost There Jobs In U.S

☒ It Resulted in Declining of Spending.

☒ Thus American Imports Declined.

To come out of this slowdown different
economies adopted different
policies mainly under the heads of
Fiscal Policy and Monetary
Policy.
Tight Monetary policy affects the economy,
first, by affecting the interest rates and then
by affecting the aggregate demand.

An increase in the money supply

reduces the interest rate, increases
investment spending and aggregate
demand and thus, increases
equilibrium output.
Loose Fiscal policy is implemented by
increasing government spending, cutting taxes
etc.

A cut in taxes will increases the

consumption of the public and thus increase in
demand.