Autopsy on a Bubble: Crisis 2008 Who, What, When Where Why, How (in charts/graphs, timelines, books)

(http://www.bis.org/publ/arpdf/ar2009e2.pdf, p, 16)

Richard M. Altman

www.businesshistory.com

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Credit Crisis and the Market

D I K P P

Data - Becomes Information When Interpreted

Information - Becomes Knowledge When Understood

Knowledge - Becomes Power When Used

Power - Becomes Progress When Measured

Progress - Becomes Data When Analyzed

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Credit Crisis and Capitalism

(http://www.scribd.com/doc/37263162/0061788406, p. 92)

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Credit Crisis and Capitalism

(http://www.scribd.com/doc/37263162/0061788406, p. 93)

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Table of Contents

1. Introduction p. 6 a) Cash and Risk p. 6 b) History’s Bubbles p. 7 c) Four Phases of a Bubble p. 8 d) Key Dates p. 12

2. What Happened: Four Stages - Cash, Risk (2) and Rescue p. 13 a) Historical Perspective p. 14 b) Stage 1: 2000-2003 - Cash Grew p. 26 c) Stage 2: 2003-2007 - Credit Risk p. 44 d) Stage 3: 2007-2009 - Market Risk (Event Risk) p. 69 e) Stage 4: 2009-2010 - Rescue: Liquidity and Solvency p. 95

3. People: Who Was Involved p. 115

4. Government/Corporate: When, What, Where (Descriptive) p. 125 a) Government Timeline p. 126 b) Corporate Timeline p. 141

5. Books: Why, How (Interpretive): p. 156 a) Credit Crisis Books (Year, Author) p. 157 b) Credit Crisis: Related Books (Author) p. 180 c) Credit Crisis: Films - (Year, Director) p. 188 d) Wall Street Books (Firm, Year, Author) p. 189 e) Wall Street: Related Books (Author) p. 193 f) Useful Articles (Source, Date, Author) p. 197 g) Useful Links & Graphics (Source, Date, Author) p. 200

6. Conclusion p. 203

7. Index p. 207 a) Authors p. 208 b) Companies p. 214 c) Government p. 217 d) People p. 221 e) Sources of charts/graphs p. 222

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Introduction

1. Introduction: Cash and Risk

―During a period of strong global growth, growing capital flows, and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence. At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system. Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions.‖ - "Declaration of the Summit on Financial Markets and the World Economy" (November 15, 2008).

Obviously, no one expected disaster. Home prices had essentially risen for 30+ years. The had government promoted policies to expand home ownership in America. Mortgage lenders had obliged by lowering standards for credit qualifications. Brokerage firms had shown real creativity by figuring out how to sell the in pieces. Credit agencies saw no evil. They bestowed AAA ratings across the board. Everything looked good. Everyone was making money.

Besides, what could really go wrong? The sector of lower quality borrowers, the subprime sector of the mortgage market, was small. It only comprised 14% of the mortgage universe at the end of 2006 ($824 billion of: 1) total mortgage debt estimated to exceed $13 trillion and 2) U.S. residential mortgage-related securities estimated around $5.8 trillion). If a problem developed - so what. Its effects would be limited. Right?

Few pondered the growing link between 1) house prices and household borrowing, 2) house prices and homeowners equity, 3) house prices and debt repayment ability. From home buyer (or refinancer) to Lehman Brothers. no one asked one BIG question - what would happen when house prices fell? What effect would it have on borrowers? How much trouble would it cause?

No one checked credit history - all the way back to the original borrower. Everyone ASSUMED proper due diligence had been conducted. And high credit ratings suggested it. Very few imagined a worst-case possibility of an unbelievable cycle of illiquidity (p. 92), a worldwide crisis of confidence, a massive hoarding of cash, a freezing of credit markets...and breathtaking economic carnage!

If Only...... 1) Prices of assets (especially housing) always rose...... 2) Interest rates always remained low (or did not reset)...... 3) Borrowers didn‘t borrow too much, always paid back and remained current...... 4) Markets (especially for sellers) always remained strong and liquid......

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Introduction: History’s Bubbles

Bubbles & Voids - Prices of assets inflate (boom) high above the future cash-generating ability of underlying assets...and, eventually, they deflate (bust). Availability of ‗cheap money‘ (lax credit) often disrupts market mechanisms which would normally cool demand (higher interest rates, higher prices).

History’s bubbles:

1) Late 1636 - 'Tulipomania' in Holland 2) 1720 - South Sea Bubble 3) 1763 - European of 1763 4) 1772-1773 - European -3 5) 1789-1797 - Assignat during the French Revolution 6) Panic of 1792 ('bancomania') - Wall Street‘s first crash 7) 1818-1819 - Crisis of The Second of the 8) 1825 - London Crisis of 1825 9) October 12, 1837 - in United States 10) 1840s - Railway Mania 11) August 24, 1857 - Ohio Life Crisis 12) 1867-1869 - Overend & Gurney 13) September 24, 1869 - in New York 14) September 18, 1873 - Jay Cooke & Co. closed; Vienna Crash of 1873 15) May 5, 1893 - 16) November 9, 1903 - Panic of 1903 (known as the "Rich Man's Panic") 17) October 1, 1907 - Crisis of 1907; spawned the Federal Reserve Bank 18) 1920s - German 19) October 24, 1929 - ―Black Thursday‖ in New York 20) October 29, 1929 - "Black Tuesday" in New York (New York Stock Exchange Crash) 21) 1931 - European Collapse and World Depression 22) 1967 - Devaluation of Sterling 23) October 19, 1987 - Crash of ‘87 24) 1990s - Japan's "Lost Decade" (1991-93 ; 1994-96 temporary recovery; 1997-99 deep recession) 25) September 16, 1992 - (UK ) 26) 1994 - 27) July 1997 - East Asian currency crisis 28) September 1998 - Russian financial crisis 29) 2000 - Dot.com bust 30) 2008 -

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Introduction: Four Phases of a Bubble

Bubbles and voids (panics) have been part of the world‘s economic life since 1636. Times change but two elements remain constant. Every speculative panic centers on cash and risk.

There‘s only one kind of cash - ‗in hand‘. When cash exceeds the amount required to retire debt, the potential for intensifies...and spreads It carries two forms of risk: event and market (liquidity).

Unanticipated announcements (events) alter a market‘s fundamentals and the future cash-generating ability of underlying assets. Illiquidity creates an information vacuum about prices, valuation models lose all relevance. Buyers vanish, sellers cannot convert assets into cash. High leverage magnifies gains and losses.

Four Phases of a Bubble:

Successful speculators ‗know more‘ than other people. They have more valid information about a prospect than competitors. Three categories of information affect odds of speculative success: 1) I know what no one else knows (legally), 2) I know what everyone else knows (no advantage), 3) I don‘t know what everyone else knows.

1) Smart Money (I know what no one else knows) - perceives or anticipates change in a market‘s fundamentals as an emerging opportunity to make money, though with big risk (assumptions could be wrong);

2) Institutions (I know what a few others know) - institutional investors screen for a market‘s momentum and prospects, buy assets, push prices higher;

3) Public (I know what everyone else knows) - greed and ‗exuberance‘ set in; everyone sees prices rising, jumps at the chance to make ‗a lot of‘ money in a "no brainer" type of situation (seems like a "guaranteed" sure thing that prices will continue to rise); Smart Money perceives change in market fundamentals, begins to sell (while others are buying);

4) Market & Liquidity Risk/Event Risk (no one knows: deep ‗valuation void‘, no one has enough information to ‗fairly‘ value crashing assets) - an ―event‖ drastically affects market conditions and prices fall quickly - not at all clear where a ‗bottom is; cannot convert to cash without putting further pressure on prices; fear takes over, confidence drops, expectations for profit totally change; reality sets in - opportunity is over, time to get out; public officials try to reassure the public - no need for fear; many try to sell - but there are few buyers; prices fall faster into the void than they rose as the bubble inflated; the house of cards collapses; over-leveraged investors go bankrupt, trigger more panic sales attempts; general public suffers heavy losses; the smart money sees ‗the bottom‘, has started to buy ‗fire sale‘ assets at bargain prices.

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Introduction: Four Phases of a Bubble

Bubbles & Voids - What They Look Like

BUBBLE

(source: http://people.hofstra.edu/jean-paul_rodrigue/jpr_blogs.html) VOID

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Introduction: Market Risk (Event Risk)

Event and Market (Liquidity) Risk - What They Look Like

October 2008 - worries of systemic collapse and economic free-fall

(http://www.imf.org/external/pubs/ft/gfsr/2009/02/pdf/text.pdf; p. 4) LTCM - Long-Term Capital Management Y2K - Year 2000 9-11 - September 11, 2001 Internet bubble - dot.com boom/bust Bear Stearns, Lehman - bankruptcies

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Introduction: Four Phases of a Bubble

Examples of Smart Money (‗I know what no one else knows‘)

1) 2006 - David Viniar, CFO of Goldman Sachs, knew that firm was losing money on its subprime mortgage trading activity; convinced firm to establish net short position in that market (p. 162);

2) 2007 - John Paulson, Paulson & Co., anticipated rising foreclosure and delinquency rates on subprime mortgages; bet against the housing market in 2007, made $3.7 billion (p. 163); the book - p. 209

3) 2008 - David Einhorn, Greenlight Capital, knew that Lehman Brothers was over-valuing its subprime mortgage portfolio; shorted stock around $60/share; company went bankrupt (p. 165)

Examples of Market & Liquidity Risk/Event Risk (‗No one knows‘ = disaster)

1) 2007/2008 - Bear Stearns a) July 2007 - two leveraged hedge funds, invested heavily in collateralized debt obligations and subprime mortgage-backed securities filed for bankruptcy (p. 163-164) b) March 2008 - ‗‘ as clients withdrew $17 billion, firm‘s equity capital plummeted (p. 94); acquired in a ‗firesale‘ by JP Morgan Chase (p. 165) c) the books - p. 206

2) Lehman Brothers Holdings a) 2008 - subprime mortgage trading portfolio leveraged by more than 30-to-1; no way to analyze the size of loss if firm‘s increasingly large and illiquid investments failed b) employed accounting maneuver to mask leverage, inflate capital position (p. 96, 155) c) September 2008 - firm declared bankruptcy (p. 166) d) the books - p. 207-208

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Introduction: Key Dates

1) 1994-2004: government relaxed standards, home ownership grew 8%/year (15 million new homeowners) 2) 1997 - first publicly available mortgage-backed securitization; boom in U.S. "structured finance"; financial intermediation shifted away from bank lending toward capital markets 3) 1999 - mortgage-backed securities repackaged into CDOs (tranched, packaged product each component of which was tranche of a packaged product 4) March 10, 2000 - dot.com bubble peaked 5) 2001-2003: mortgage refinancing boom 6) 2003: Foreign Purchases of US Securities Set Record (Treasury International Capital of $707.9 billion - Treasuries, federal agency securities (GSE‘s), corporate bonds, , ; source: U.S. Treasury) 7) June 27, 2003 - ‗refi‘ boom ended; refinancings hit high of $843 billon (71% of total); then lending standards loosened 8) 2nd quarter 2004 - U.S. homeownership peaked at 69.2% 9) 2003-2005 - private label mortgage securitization boom 10) 2005 - subprime loans peaked at 2.3 million (more than 68% of all nonprime loans, 13.7% of all loans) 11) July 29, 2005 - housing index traded at high of 587.32 12) 2003-2007: foreign inflows of capital to U.S. Treasury securities caused collapse of agency spreads 13) 2004-2007: mortgage lenders lowered credit standards to offset decline in volume of refinancings 14) 2nd quarter 2006 - S&P/Case-Shiller index peaked at 189.93 after 13 year rise 15) 2006-2009 - collapse of ―private label‖ mortgage securitization 16) February 12, 2007 - S&P bank index traded to high of 412.62 17) May 23, 2007 - housing index broke down from 241.95 18) October 14, 2008 - Merrill Option Volatility Estimate index peaked 19) July 9, 2007 - S&P bank broke down from 392.29 as prices on subprime mortgage-related securities fell 20) November 21, 2008 - Agency spreads peaked (reflected level of confidence in creditworthiness of government-sponsored entities , ; difference between the yield on FNMA debentures versus the yield on Treasury bonds of comparable maturity) 21) March 6, 2009 - Dow Jones Industrial Average traded to an intraday low of 6,469.95 22) 2007-2010: credit standards tightened

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2. Historical Perspective

Historical Perspectives

Stock Market

Asset Returns: 1926-2009

Bond Market Returns: 1985-2008

Growth of Market-Based System

Cash Sources

Credit Supply

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Credit Crisis and the

Dow Jones Industrial Average (Weekly): 2006-2010 (http://www.djaverages.com/)

(http://chart.bigcharts.com/custom/djindexes- com/big.chart?type=256&ma=3&maval=100&style=2281&rightfill=0&uf=8192&sid=1643&symb=DJI&size=8&time=5yr&freq=1 wk)

Dow Jones Industrial Average (Monthly): 2000-2010 (http://www.djaverages.com/)

(http://chart.bigcharts.com/custom/djindexes- com/big.chart?type=256&ma=3&maval=100&style=2281&rightfill=0&uf=8192&sid=1643&symb=DJI&size=8&time=10yr&freq= 1mo) «URLs»

Credit Crisis and the Stock Market

Dow Jones Industrial Average

(http://www.scribd.com/doc/37263162/0061788406, p. 122)

October 9, 2007-March 9, 2009 = U.S. Equities down 57%; 2nd worst in 80 years (source: Standard & Poor‘s)

(http://www.nytimes.com/imagepages/2009/02/06/business/20090207_CHARTS_graphic.html)

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Credit Crisis and the Stock Market

Stock Market Indices (January 3, 2000-December 31, 2009)

(http://www.usatoday.com/money/markets/2010-01-03-2010-outlook-stocks_N.htm)

Emerging Stock Markets - Returns (2000-2009)

(http://graphics8.nytimes.com/images/2009/12/29/business/20091230_EMERGE_articlespan/articleLarge-v2.jpg)

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2. Historical Perspective Returns on Investing

20th Century: Stocks, Bonds, Bills and Inflation (1926-2009)

1) small stocks = $9,549 2) large stocks = $2,049 3) government bonds = $99 4) Treasury bills = $21

(http://www.ibbotson.com.au/Assets/Files/Are%20Bonds%20Going%20to%20Augu st%202009%20update.pdf, p. 2)

$100 Invested (2000-2009):

gold commodities oil high-grade corporate bonds U.S. Treasury securities U.S. stocks

(http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aHuMwsIjMF.U) $100 investment in gold = more than $380; $100 in commodities = about $357; $100 in stocks -$10 (down 10%); $100 in crude oil - $268 (down than $500 in 2008)

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2. Stage 1: Cash Sources Debt Market Performance

Stocks vs. Bonds (1801-2009)

1) 1802-2008 - returns on stocks beat bonds by 2.5 percentage points annually 2) 1803-1871 - bonds beat stocks 3) 1929-1949 - bonds beat stocks 4) 1932-2000 - stocks beat bonds 5) 1968-2009 - bonds beat stocks

(http://barrons.wsj.net/public/resources/images/BA- AP167B_stree_NS_20090327183622.gif)

(http://media.ft.com/cms/d787e258-f882-11de-beb8- 00144feab49a.gif)

Total Return 2000-2009: 1) Barclays Capital index of US Treasury bonds (including capital gains and interest) about 85% 2) UK stocks and European government bonds - 72% and 71% respectively 3) Since 2000 - size of US bond market debt nearly doubled (source: Securities Industry and Financial Markets Association) a) record low U.S. interest rates b) Asian savings glut c) securitization (http://www.schwab.com/public/file?cmsid=P- 3379254&filename=MI_B_120909_Willaims_Reasons_6.gif&cv2)

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2. What Happened (2003-2008) Cheap Money, Easy Borrowing

Cheap Money

Low short-term rates

Low long-term rates

1) house prices rose as interest rates fell, slowed as Fed's targeted rate rose gradually; started falling as interest rates stabilized at 5.25% in 2007 2) November 2002 - Single-family homes sold at a record 1.069 million annual rate; fourth consecutive month above 1 million (also a record); lowest mortgage rates in more than three decades 3) 2004 - home ownership in rose to 69.2% from 64.1% in 1991 (43% for blacks, (http://macroblog.typepad.com/macroblog/images/2007/03/22/interest_rates.gif) 39% among Hispanics, 27% for very low- income families with children) 4) aggressive Fed rate cuts fed speculative

leveraging, heightened demand for securitizations, aggressive lending in asset markets, asset inflation, the inflation (of volume and prices) of myriad Credit instruments with perceived limited liquidity and Credit risk (certainly including ABS, MBS and agency debt, along with more sophisticated Wall Street debt instruments and structures).

http://linkback.morganstanley.com/web/sendlink/webapp/BMServlet?file=76b028ef- 158a-11de-8354-05fa192ae448&user=74utgy9c0vf- 1016&__gda__=1332187519_2992ba365f86646d00cdfa965a102eaa, p. 9)

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2. Historical Perspective U.S. Credit Market

Total U.S. Credit Market (1929-2009)

Percent of GDP

By Sector

2008- total U.S. credit outstanding amounted to about 350% of U.S. GDP

(http://www.morganstanley.com/institutional/techresearch/pdfs/MS_Economy_Inter net_Trends_102009_FINAL.pdf p. 26)

U.S. Debt Mix (1984-2008)

(http://linkback.morganstanley.com/web/sendlink/webapp/BMServlet?file=76b028ef -158a-11de-8354-05fa192ae448&user=74utgy9c0vf- 1016&__gda__=1332187519_2992ba365f86646d00cdfa965a102eaa, p. 10)

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2. Historical Perspective Mortgage ‘Game’ Changed

Banks Out, Capital Market In

1) 1980 - broker/dealer firms began rapid increase in market share; ‗securitization‘ of residential mortgages replaced traditional lending function

(http://www.aei.org/imgLib/FSONOVFigure-1.jpg) 2) 2nd quarter 2007 - ‗market-based‘ assets much greater than bank assets (securitization pools or institutions funded by issuing securities)

3) 3rd quarter 2007 - market-based suppliers of credit disappeared; commercial filled void, increased share of credit market

(http://www.ny.frb.org/research/staff_reports/sr360.pdf, p. 4)

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2. Historical Perspective Banks: New Funding Sources

Bank Funding Became Less Stable (core deposits dropped as % of total assets) 1) early 1980s - legislative reforms, technological advances: a) intrastate banking restrictions lifted, b) interest rates paid on deposit accounts deregulated, c) bankers attracted deposits outside local markets 2) 1990s - deposits lagged growth 3) 1995-2010 - banks relied more on: a) less stable, more complex wholesale interbank funding sources (federal funds, repurchase agreements, Federal Home Loan Bank advances) b) interest rate-sensitive noncore deposits (brokered deposits, CDs greater than $100,000, borrowed money) 3) traditional banking model replaced by ―originate and distribute‖ banking model (http://www.fdic.gov/bank/analytical/banking/2006sep/article1/fig2.gif) (banks pooled loans, separated them into

tranches, securitized them, sold them) to Average non-deposit liabilities across 30,000 banks reporting to attract large amounts of foreign capital) Bankscope* during the 2001-2006 4) risk - as market conditions changed, noncore deposit customers transfered funds, wholesale funds repriced quickly 5) high risk for institutions with longer-term assets more than 40% of total assets 6) Non-Core Funding Dependence Ratio - degree to which bank funds longer-term assets (loans, securities that mature in more than one year, etc.) with non-core funding; higher ratios: reliance on funding sources that may not be available in times of financial stress or adverse changes in market conditions)

(http://vox.lacea.org/images/figure1wastheworldwide.jpg) *(http:bankscope.bvdep.com/)

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2. What Happened (2003-2008) ‘Securitize’ Everything

Credit Supply: Growth of New Sources (2000-2008)

1) 2000-2007 - flow of new credit from issuing asset-backed securities 2) 2001 - $767 billion 3) 2002-2007 - three-fold increase in new issues 4) 2004 -$1.4 trillion 5) December 2006 (peak) - $2.7 trillion 6) 2007: a) market-based providers of credit disappeared b) subprime sector - most dramatic fall 7) October 2008 - $424 million (http://www.ny.frb.org/research/staff_reports/sr360.pdf, p. 3)

Home and Commercial Mortgages Securitized, 1966-2006 (Securities ‘Backed’ by Mortgages)

Mortgage-Backed Securities (unregulated market)

1) mortgages offered steady cash flow, low default rate, easy geographic diversification, ready transferability 2) new ways to fund mortgages; augmented banking industry‘s balance sheet capacity 2) new sources of credit availability 3) more diversified sources of funding mortgage loans

(www.imf.org/external/pubs/ft/wp/2009/wp0926.pdf); page 12 4) mortgage loans easier to sell

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2. Stage 2: Credit Risk Household Consumer Debt

Types of Consumer Debt (1991-2010)

Consumer Credit Home Mortgages

(http://www.philadelphiafed.org/payment-cards-center/tools-for- researchers/consumer-statistics/_images/consumer-debt-02.jpg)

Who Held Consumers’ Debt

1) commercial banks 2) credit unions 3) finance companies 4) issuers of asset-backed securities 5) savings institutions

(http://www.philadelphiafed.org/payment-cards-center/tools-for- researchers/consumer-statistics/_images/holders-of-consumer-debt-01.jpg)

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2. Stage 2: Credit Risk Household Mortgage Debt

Percent Held (1971-2006)

1) 2002 - Government Sponsored Enterprises controlled 50% of outstanding mortgage debt 2) 2006 - controlled 42%

(http://www.recharts.com/reports/CSHB031207/CSHB031207.pdf, 14) Amount Held by Type of Institution (1980 - 2008)

1) early 1980s - banks were dominant holders of home mortgages 2) about 1983 - market-based mortgage holders (GSE mortgage pools, private label mortgage pools, GSE holdings themselves) overtook bank-based holdings (commercial banks, savings institutions, credit unions) 3) 1990s - GSEs lost market share due to limited exposure to high risk mortgage products (high CLTV loans, low/no documentation mortgages, interest- only/negative amortization loans) 4) 2008 - market-based holdings constituted two thirds of $11 trillion total of home mortgages

(http://www.ny.frb.org/research/staff_reports/sr360.pdf, p. 2)

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2. Stage 1: Cash Sources (2000-2003)

Stage 1: Cash Sources (March 2000-June 2003) Home Prices

Trade Imbalances

Interest Rates

June 2003: Fed Funds at 1% (45-year low)

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2. Stage 1: Cash Sources

(http://www.imf.org/external/pubs/ft/fandd/2008/06/pdf/khor.pdf, p. 21)

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2. Stage 1: Cash Sources

(http://www.imf.org/external/pubs/ft/gfsr/2009/01/pdf/chap1.pdf, p. 31)

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2. Historical Perspective 2000 Dot.com Bust

Dot.com Bubble Burst

1) March 10, 2000 - Nasdaq composite index hit high of 5,132.52

2) October 9, 2002 - Nasdaq composite traded at 1114.11, down 78%

2000-2009: 1) $1 invested on January 1, 2000 = $.909 on December 31, 2009; S&P 500 posted average annual decrease of 0.9%/year (http://graphics8.nytimes.com/images/2005/03/09/business/10scene.graphic.gif) since 1999 (including dividends), first

negative return for a decade since data began in 1927 (source: Standard & Poor‘s) 2) $1 invested in 10-year U.S. Treasury bills

worth $1.80 ( 6.1% annualized return; source: Bloomberg)

(http://www.treasury.gov/resource-center/data-chart- center/interest-rates/Pages/Historic-LongTerm-Rate-Data- Visualization.aspx)

(http://sg.wsj.net/public/resources/images/MI- BB956_INVEST_NS_20100309191623.gif)

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2. Stage 1: Cash Sources Home Prices Up

Rising Home Prices

Housing as an Investment (1890-2006): $100,000 house (inflation-adjusted) = $66,000 in 1920 + $199,000 in 2006

1) 1975-2006 - house prices rose 2) 1998-2005 - household real estate wealth (house and underlying land value) increased from $10 trillion to $24 trillion c) 1994-2004 - homeownership rose to record 69.4% d) 1997-2006 - home prices rose about 83% e) low interest rates f) rapid population growth g) employment growth h) availability of credit i) lenders lent to to more households as (http://www.nytimes.com/imagepages/2006/08/26/weekinreview/27leon_graph2.htm value of housing (collateral) rose l)

Home Prices Rose Sources: Office of Federal Housing Enterprise Oversight (OFHEO); National Association of Realtors (NAR); U.S. Bureau of the Census.

1) 2001-2004 - housing prices rose 49.67% 2) 2nd quarter 2003-2nd quarter 2004 - rose 9.36% (largest 4 quarter increase since 1979) 3) 2000-2006 - rose about 10%/year on average (faster than income), 80% in total 4) 2001-2005 - S&P/Case-Shiller index up 77% 5) 2nd quarter 2006 - S&P/Case-Shiller (http://www.stlouisfed.org/publications/re/articles/?id=969#figure1) index peaked at 189.93 after 13 years 6) protected marginal buyers - refinance into more affordable mortgage or sell for profit when ARM reset

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2. Stage 1: Cash Sources Interest Rates Down, Home Ownership Up

Low-Cost Debt

1981-2010: 1) household debt increased nine-fold, twice as fast as disposable personal income (DPI) 2) cost of borrowing declined (October 1981 peak mortgage rate of 18.2%) 3) household debt service as % of DPI increased from 10.7% to 12.6%

(http://www.nytimes.com/imagepages/2010/04/11/business/11rates- 4) household debt at $13.5 trillion, $2.5 graphic.html?ref=economy) trillion more than DPI

5) 1994 - government relaxed underwriting standards to expand homeownership in U.S. (easier to qualify for home loans 6) 15 million new homeowners in the United States 7) homeownership market grew 8% 8) 2nd quarter 2004 - U.S. homeownership hit an all time high of 69.2%. Minority homeownership set a new record of 51%

http://linkback.morganstanley.com/web/sendlink/webapp/BMServlet?file=76b028ef- 158a-11de-8354-05fa192ae448&user=74utgy9c0vf- 1016&__gda__=1332187519_2992ba365f86646d00cdfa965a102eaa, p. 5)

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2. Stage 1: Cash Sources Home Prices vs. Income

Real Household Income (2003 dollars, adjusted for inflation)

1) much of 20th century - house prices rose no faster than inflation (source: Robert Schiller) 2) 1967-2003 - income up 30% 3) 1970-2000 - home prices rose roughly with incomes (tax breaks for homeownership, falling interest rates) 4) 1999 - income peaked 3) share of consumer spending (income) for housing - around 14%-15% for last 60 years; share of spending on food down to 13% from 25%

(http://www.census.gov/prod/2004pubs/p60-226.pdf, p. 3) 4) increased spending on housing - increases in value of underlying land

Home Prices vs. Income

Ratio of OFHEO house price index to Ratio of House Prices to Income (Varies Across States) median household income (index divided by income)

1999- 2005: 1) lack of real income growth 2) ratio increased by about 50% for United States as a whole 3) ratio rose by nearly 90% in Florida 4) up over 100% in California 5) up 38% in Missouri 6) rose 22% in Texas 7) ratio of median house price to income about 3.4 (pre-bubble average about 3.2) 8) 2004 - median size of new single-family homes 2,140 square feet (vs. 1,535 square feet in 1975, source: Census Bureau)

(http://www.stlouisfed.org/publications/re/2007/b/images/slump-Fig1-LG.gif)

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2. Stage 1: Cash Sources Home Affordability Up, Inventory Down

Home Affordability

Since 1993 - mortgage rates averaged less than 8% on annual basis

Since 2000 - effective mortgage rate (interest and fees) declined

February 2003-June 2006 - homeownership more difficult as property prices rose, mortgage rates rose (down payments bought ‗less‘ property, higher percentage of family income required to support mortgage debt service)

(http: //www.standardandpoors.com/spf/fgr_articles/825441/5878853.gif)

Home Inventory Fell

Demand increased for a low supply of homes

July 2010 - sales of new homes in the U.S. fell to record low, seasonally-adjusted annual rate of 276,000 (down 32.4% from 2009); single family sales at lowest level since May of 1995; 12.5 months supply of existing homes.

(http://www.dallasfed.org/research/eclett/2007/images/el0711c4.gif ) «URLs»

2. Stage 1: Cash Sources Trade Imbalances Grew

Trade Imbalances 1) 1945-1970s - U.S. regularly sold more abroad than it purchased 2) 1950-1970 - invested surplus abroad (net investment, holdings of foreign assets less foreign holdings of U.S. assets) increased from $37 billion to $68 billion (government revised methodology) 3) late 1970 - trade situation reversed, produced deficits (initially about 1% of GDP - consumed about 1% more than produced) 4) 2003 - trade deficit greater than 4% of GDP); rest of world owned $2.5 trillion more of the U.S. than U.S. owned of other countries 5) 2006 - record U.S. trade deficit of $763.6 billion; deficit in goods of $836.1 billion, surplus of $66.0 billion in services

6) capital from the rest of world financed

(http://www.berkshirehathaway.com/letters/growing.pdf) expansion of U.S. economy 7) steadily declining U.S. savings rate (negative for household sector), highly positive rates for China, other emerging countries 8) surpluses for rapidly growing countries financed U.S. budget and external current account deficits 9) credit crisis: decline in U.S. housing market, depreciation of structured financial products (backed by long- overvalued real estate)

(http://www.bis.org/review/r091211d.pdf, p.8)

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2. Stage 1: Cash Sources Global Capital Flowed into U.S.

Global Capital Boom

Global cross-border capital flows reached about 14.5% of world GDP by 2005 (left); kept interest rates low.

Global Assets Under Management

1) 2007 - $109.5 trillion (measured in local currencies, sixth consecutive year of expanding wealth, profitable period for most wealth managers 2) 2009 - up 11.5% to $111.5 trillion (source: Boston Consulting Group Glopbal Wealth report: 62 countries, represent more than 99% of global domestic product) 3) bond inflows much larger than equity inflows over past few years

(http://www.imf.org/external/pubs/ft/fandd/2007/03/images/pazar3.gif)

Global Capital Market Boom

Global stock market capitalization reached $38 trillion in 2005, $45 trillion for bond markets.

(http://www.imf.org/external/pubs/ft/fandd/2007/03/images/pazar3.gif, Chart 3)

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2. Stage 1: Cash Sources Foreign Capital Inflow

Foreign Capital Flowed to U.S. Securities

Central banks in Japan, China, Europe bought U.S. Treasury notes and bonds (to hedge currencies against dollar)

Since 1994 - foreign ownership of U.S. long-term securities has exceeded U.S. ownership of foreign long-term securities: 1) end 1994 - market value of foreign U.S. holdings about 40% higher than that of U.S. holdings of foreign securities (about 70% higher at end of 2005) 2) June 2005: a) estimated total foreign holdings of about http://linkback.morganstanley.com/web/sendlink/webapp/BMServlet?file=76b028ef- $7.3 trillion, about 16% of all U.S. long- 158a-11de-8354-05fa192ae448&user=74utgy9c0vf- term securities outstanding (triple 1974 1016&__gda__=1332187519_2992ba365f86646d00cdfa965a102eaa, p. 8) level of 5%, $67 billion )

b) asset-backed securities represented 33% ($259 billion) of foreign holdings of U.S. agency securities, 26% ($458 billion) of

foreign holdings of corporate debt Cost of Mortgage Credit: Investors' Risk Compensation for securities (vs. 25%, 15% as of June 30, Holding Mortgage-Backed Securities 2002); caused major distortions in pricing of American securities, created demand for highly-levered structured instruments that (temporarily) provided higher returns 3) pushed down long-term yields, very hard to generate expected returns (2001-2010: median expected investment return of 8% for U.S. public pension funds, source: National Association of State Retirement Administrators); had median, annualized return of 9.3% over past 25 years, 3.9% over past 10 (source: Callan Associates) (source: Freddie Mac, Bloomberg; 4) searched for yield advantage: high short- http://www.federalreserve.gov/pubs/feds/2011/201101/fig3.gif) July 2000-March 2004: "pre-subprime" or "normal" mortgage era term yields in alternative assets with April 2004 July 2007:"subprime dominance" era similar levels of risk (subprime assets) August 2007-November 25, 2008 -financial crisis November 25, 2008-March 31, 2010:Federal Reserve intervention in MBS market April 1, 2010-November 2010:post-Fed intervention period

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2. Stage 1: Cash Sources: Financial Deregulation/Banking

(http://www.spiegel.de/international/business/0,1518,grossbild-1581094-635051,00.html)

(http://www.economics.harvard.edu/files/faculty/51_Banking_Crises.pdf. p. 24)) Globalization and Banking Crises Financial liberalization policies and banking industry stability: 1) inadequate regulation 2) lack of supervision 3) 1970 - countries with banking problems began to grow 4) 1980 - collapse in global commodities prices, high interest rates (debt crises in Latin America, Africa) 5) 1984 - U.S. savings & loan crisis 6) 1992 - Japan‘s asset bubble burst (banking crisis for a decade) 7) 1994-1995 - Mexico, Argentina 8) 1997-1998 - Asian financial crisis 9) 2007 - subprime crisis (global financial crisis)

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2. Stage 1: Cash Sources Interest Rates Lowered

Interest Rates Fell

Jan. 2001-June 2003 - Federal Reserve cut fed funds rate 14 times, from 6.5% to 1% (45-year low) 1) house prices rose as interest rates fell, started falling as interest rates stabilized at 5.25% in 2007 2) November 2002 - single-family homes sold at record 1.069 million annual rate; lowest mortgage rates in more than three decades 3) June 2003 - Federal Funds rate of 1.0% (for 18 months, lowest since 1954) 4) 2nd quarter 2004 - U.S. home ownership rose to 69.2% from 64.1% in 1991 5) aggressive Fed rate cuts (held interest (http://www.cato.org/images/pubs/commentary/090406_chart_1.jpg) rates at 1% for 18 months) a) fed speculative leveraging b) heightened demand for securitizations, aggressive lending in asset markets, c) inflated assets d) inflated (volume and prices) myriad credit instruments with perceived limited liquidity and low credit risk (ABS, MBS, agency debt, more sophisticated Wall Street debt instruments and structures) 5) Timeline from 2000-2010: a) Area 1: inverted yield curve signaled pending dot.com bubble burst b) Area 2: Fed reflated, held interest rates at

(http://static.seekingalpha.com/uploads/2010/2/22/saupload_yield_curve_2010_02_2 1% for 18 months, fueled credit bubble 1_2.png) c) Area 3: yield curve tight for 2 years, inverted on and off for 18 months; d) Area 4: Fed reflated, cut rates to zero

(ftp://174.34.168.195/PDFs/Magazines_&_Newsletters/Securitized_Products_Weekl y_03Apr09.pdf, p. 7)

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2. Stage 1: Cash Sources Mortgage Equity Originations

Mortgage Originations, Mortgage Equity Withdrawals Boomed (1991-2005, $ Billions)

1) Home Sales: $223.1 to $914.5 2) Cash-Out Refinancings: $17.8 to $197.9 3) Home Equity Loans: $24.1 to $325.9 4) Total: $262.2 to $1.429 trillion (source: http://www.federalreserve.gov/pubs/feds/2007/200720/200 720pap.pdf, p. 18-25)

(data:http://www.google.com/url?sa=t&source=web&cd=11&ved=0CBcQFjAAOA 6) 2002 - 75 million homeowners (58% with o&url=http%3A%2F%2Fwww.mbaa.org%2Ffiles%2FResearch%2FHistorical_Mort gage_Origination_Estimates.pdf&rct=j&q=Mortgage%20Origination%20Data%201 mortgages); 8 million refinanced 990%20-%202008&ei=My4NTZO- 7) 2003 - 1 in every 4 households refinanced BY7msQOLpLmACw&usg=AFQjCNFKriymoI4lXYmKp3mz8BgrlTZK4g&cad=rj 8) 2nd quarter 2002 - refinancings hit high a); chart: http://mortgagestats.blogspot.com/2009/02/19-years-of-mortgage- origination-data.html) of 74% of total originations ($748 billon) 9) 2nd quarter 2003 - refinancings hit high of $843 billon (71% of total); 5.6% of

disposable income 10) 3rd quarter 2003 - record $119.9 billion originations 11) 2001: a) $2.2 trillion of mortgage originations (65% conventional conforming loans, FHA, VA loans) b) 20% prime jumbo mortgages (issued to those with good credit for houses too expensive for conforming loans) c) 85% prime 12) 2003 - nearly $4 trillion loans issued (85% prime mortgages, volume of conformable mortgages soared) 13) 2004-2006: a) total volume of mortgage lending dropped to around $3 trillion b) 64% prime mortgages in 2004, 56% in 2005, 52% in 2006 (48% subprime, Alt-A or home equity) (http://www.brookings.edu/~/media/Files/rc/papers/2008/0516_credit_squeeze/0516 _credit_squeeze.pdf, p. 14)

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2. Stage 1: Cash Sources Mortgage Equity Withdrawals

Mortgage Equity Withdrawals Boomed (1991-2005, $ Billions)

3 components of gross equity extraction: a) cash outs resulting from refinancings b) home sales: originations to finance purchases of existing homes minus sellers' debt cancellation c) home equity loans: change in home equity debt outstanding less unscheduled repayments on residential mortgage debt obligations

(http://www.federalreserve.gov/pubs/feds/2005/200541/200541pap.pdf, p. 12)

1) Cash-Out Refinancings: $17.8 to $197.9 2) Home Equity Loans: $24.1 to $325.9 (source: http://www.federalreserve.gov/pubs/feds/2007/200720/200 720pap.pdf, p. 18-25)

3) 2001-2008 - more mortgage equity withdrawal than home-purchase mortgage financing in almost all quarters (mortgage debt cheaper than consumer debt - Tax Reform Act of 1986) 4) 2001-2005 - cash-out refinancings averaged $152.7 billion (up from $27.2 billion average between 1991-2000 )

(http://www.dallasfed.org/research/eclett/2007/images/el0711c7.gif)

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2. Stage 1: Cash Sources Mortgage Equity Withdrawals

Free Cash from Equity Extraction

Borrowing and Spending

1) 2001-2005: a) nearly $1 trillion/year in extra spending cash (triple average rate $300 billion in previous decade) b) averaged nearly 6% of disposable income

2) Uses c) home improvements d) consumption (consumer spending) e) debt reduction 3) 1947-2000 - personal consumption spending averaged 64% of total gross domestic product 4) 2001-2007 - averaged 70% http://media3.washingtonpost.com/wp- dyn/content/graphic/2007/05/30/GR2007053000072.gif; "Sources and Uses of Equity Extracted From Homes," by Alan Greenspan and James Kennedy | The Post - May 30, 2007)

Personal consumption as a share of the economy from 1953 through the end of 2007; MEW - borrowing against home equity (mortgage equity withdrawals)

(http://graphics8.nytimes.com/images/2008/04/18/opinion/21chart-533.gif) Consumption, GDP data from Bureau of Economic Analysis. Mortgage equity (http://media.gallup.com/POLL/Releases/pr070212biv.gif) withdrawals are measured as the year-over-year change in mortgage debt (from the Federal Reserve Flow of Funds) minus 70 percent of residential investment spending (from the BEA). (Source: L. Josh Bivens, Economic Policy Institute)

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2. Stage 2: Credit Risk Home Loans: Amount/Type

Loans Secured by Homes (1990-2008) 1) 1990s - average of 7.6 million annual loan originations, average annual dollar value of roughly $736 billion 2) 2000-2003 (peak) mortgage activity increased rapidly 3) 2008 - originations back to historical levels

Types of Loans Secured by Homes (1990- (http://www.fcic.gov/reports/pdfs/2010-0407-PSR_-_The_Mortgage_Crisis.pdf, p.4) 2008)

2003-2006: 1) amount of conforming (GSE/other) originations dropped sharply from nearly

$2.5 trillion (over 60% of all originations) to roughly $1.2 trillion (35%) 2) IMF:Alt-A/subprime/FHA loans gained

substantial market share (loans labeled alt-A or subprime by lenders in IMF survey, loans insured by the FHA or VA) a) 1990 - subprime loans (reported by IMF) totaled $37 billion (9% of originations b) 2005 peak - $625 billion (about 25%) c) 2004-2007 - Alt-A loans most prevalent (doubled between 2003-2004, again between 2004-2005); 2006 - totaled nearly $400 billion, comprised over 15% of all originations; alt-A and subprime originations together comprised nearly 40% of all origination activity d) 2002-2003- much of the refinance boom

(http://www.fcic.gov/reports/pdfs/2010-0407-PSR_-_The_Mortgage_Crisis.pdf, p.8) due to borrowers not in IMF:Alt- A/subprime/FHA category e) 2004-2007 - great proportion of purchase, refinance activity involved loans labeled subprime, alt-A by IMF

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2. Stage 2: Cash Sources: Refinancing Ended/New Customers Needed

Refinancing Boom Ended (2003)

(http://www.fdic.gov/deposit/insurance/risk/2005_01/Imgs/economy_fig16.gif)

New Revenues: Riskier Residential Lending (broaden the customer base)

Subprime: a) lower down payments b) interest only c) payment-option loans d) higher debt-to-income thresholds e) higher loan-to-value allowances f) lower credit scores g) no incentive to control quality of lending (no stake in the outcome) h) temporary lift in home ownership i) 2nd quarter 2004 - national homeownership rate peaked j) 2006 - 39 million homeowners paid more than 30% of income on housing k) 2006 - 18 million paid more than 50%

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2. Stage 2: Credit Risk (2003-2007)

Stage 2: Credit Risk (July 2003-July 2007)

1. Securitization Boom

2. The Lenders

3, The Packagers

4. The Raters

5. The Delivery Men

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2. Stage 2: Credit Risk

(http://www.imf.org/external/pubs/ft/gfsr/2009/01/pdf/chap1.pdf, p. 56)

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2. Stage 2: Credit Risk - Risks Galore

(http://faculty.baruch.cuny.edu/jwang/seminarpapers/BCD_basis_Sep2010.pdf, p. 24)

(http://www.kc.frb.org/publicat/sympos/2008/gorton.08.04.08.pdf, p. 60)

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2. Stage 2: Credit Risk Household Debt/DPI

Counterpart to Rising Home Prices

Household Debt Service Ratio and Financial Obligations Ratios Rose

Household Debt Service Ratio (DSR) - ratio of debt payments to disposable personal income (estimated required payments on outstanding mortgage and consumer debt): 1) 1980 - about 11% of DPI 2) 4th quarter 1986 = 12.38% of DPI 3) 4th quarter 2000 - 12.59% 4) 3rd quarter 2007 - 13.96% 5) 1997- 2007 - U.S. household leverage (http://www.stlouisfed.org/publications/itv/2008/b/images/debtpayment.gif) ratio rose by 42%; inflation-adjusted per- person debt increased more than 80% (largest increase over a 10-year span since

1960s) 6) 2002-2007 - household debt doubled

Financial Obligations Ratio (FOR) - [DSR + automobile lease payments, rental payments on tenant-occupied property, homeowners' insurance, property tax payments]: 1) 1st quarter 1980 - 16.04% of DPI 2) 2nd quarter 1987 - 17.98% of DPI 3) 1st quarter 1991 - 17.43% (mortgage portion = 10.39% or 59.6% of total) 4) 3rd quarter 2007 = 18.86% (mortgage portion - 11.3%, or 59.9% of total)

(http://research.stlouisfed.org/fred2/data/FODSP_Max_630_378.png)

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2. Stage 2: Credit Risk Why ARMs

U.S. Treasury Securities: Spreads (1998- 2007)

1) greater the difference between short and long term rates, greater the incentive for borrower to use an Adjustable Rate Mortgage (tied to short rates) rather than fixed rate mortgage (tied to long rates), especially if borrower plans to sell or refinance the house after short period of time

(http://media.cnbc.com/i/CNBC/Sections/News_And_Analysis/_Blogs/By_The_Nu 2) 2001-2004 - relatively wide spread mbers/__IMAGES/080304%20Treasury%20spreads.jpg) between short and long rates 3) August 2003 - record spread of 370.5

basis points between 30 year U.S. Treasury bond, 2 year U.S. Treasury note 4) August 2007 - near zero

1) 2001-2003 -serious delinquency on both subprime ARMs and FRMs rose above 10% 2) early 2006 - subprime ARMs started to deteriorate 3) 3rd quarter 2009 - subprime ARM delinquency rates over 40% subprime FRMs over 20% delinquent, prime ARMs 18% delinquent, prime FRMs about 5% delinquent)

(http://www.fcic.gov/reports/pdfs/2010-0407-PSR_-_The_Mortgage_Crisis.pdf, p. 20)

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2. Stage 2: Credit Risk Rates on ARMs

Subprime Rates (2000-2008)

1984-2008 - average 1-year Freddie Mac ARM rate of 6.41%

1990s - 5.99% average

2003 - lowest average rate of 3.76%

2000-2009 - averaged 5.10%

(http://www.bankofcanada.ca/en/conference_papers/economic_conference2010/De Marco_Laurie.pdf, 42)

(http://www.bankofcanada.ca/en/conference_papers/economic_conference2010/De Marco_Laurie.pdf, p. 43)

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2. Stage 2: Credit Risk Credit Supply: Securitization

Asset-Backed Securitization (1985-2005)

1) issuing asset-backed securities offered new sources, supply of credit 2) 1985 - $126 billion 3) 2005 - $2.7 trillion 2) late 2007: a) market-based providers of credit disappeared b) subprime - most dramatic fall

Share of Securitized Market* a) 2005 - government-backed share of net (http://www.fdic.gov/bank/analytical/regional/ro20063q/na/images/NP_chart_01.gif) new mortgages (Fannie Mae, Freddie Mac, Ginnie Mae) lagged production of non-agency issuers for the first time (residential mortgage securitization, not backed by Fannie Mae, Freddie Mac or Ginnie Mae, reached $744 billion) b) 1st quarter 2006 - non-agency securitization peaked (nearly 40% of net new originations) c) 4th quarter 2006 - about 10% of originations labeled "subprime" d) middle 2007 - nonconforming loan originations contracted, dramatic declines in non-agency securitization e) 1st quarter of 2008 - subprime share effectively zero

(http://www.frbsf.org/publications/economics/letter/2009/el2009-33c.png) * Government Agency (Fannie Mae, Freddie Mac, Ginnie Mae) * Non-agency - broker/dealers

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2. Stage 2: Credit Risk Credit Supply: ‘Private Label’

Non-Government Agency (‘Private Label’) Securitization Boom (2000-2009)

Mortgage-Backed Securities (MBS) 1989-1992 - ; Government offset loss of lending capacity 1) 1990s - private lenders accounted for about half of net mortgage borrowings 2) 1999 - volume of outstanding MBS exceeded outstanding U.S. Treasury securities 3) 2003-2005 - private label (non-agency) MBS issuance more than doubled from $586 billion to $1.191 trillion; 4) 2005 - surpassed agency MBS issuance of $966 billion in 2005 for first time (mortgages offered steady cash flow, low default rate, easy geographic diversification, ready transferability) 5) 2004-2005 - Government-backed percentage share of net new mortgages was almost none (see also p. 27) 6) 2006 - private lenders suffered mounting losses; reduced new originations; Government share of net borrowings increased 7) 2009 - Federal Government, organizations it backs, guaranteed or issued almost all net new borrowings for mortgages, MBS (source: Federal Reserve net borrowings data)

(http://www.imf.org/external/pubs/ft/gfsr/2009/02/pdf/text.pdf, p. 84)

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2. Stage 2: Credit Risk Credit Supply: ‘Private Label’

Private Label’ (Non-agency) Mortgage Boom (1988-2009) 1) 1989-1992 - S&L crisis; Government offset loss of lending capacity 2) 1990s - private lenders accounted for about half of net mortgage borrowings 3) 2003-2005 - private label (non-agency) MBS issuance more than doubled from $586 billion to $1.191 trillion 4) 2005- accounted for majority of new loans, surpassed agency MBS issuance of $966 billion for first time (drew existing mortgages from Government sector through refinancings) (http://www.sigtarp.gov/reports/congress/2010/January2010_Quarterly_Report_to_C 5) 2004-2005 - Government-backed ongress.pdf, p. 109) percentage share of net new mortgages was almost none 5) 2006:

a) private lenders issued more than 84% of subprime mortgages (Federal Reserve) b) private firms made nearly 83% of subprime loans to low- and moderate- income borrowers Federal Reserve) c) private lenders suffered losses, reduced new originations; Government share of net borrowings increased 4) 2009 - federal government guaranteed or issued almost all net new borrowings for mortgages, MBS (source: Federal Reserve net borrowings data)

(http://www.federalreserve.gov/pubs/ifdp/2010/1010/figure1.gif)

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2. Stage 2: Credit Risk Mortgage Types

Prime and Nonprime Mortgage Originations (2002-2006) 1) Prime - 45% share of conventional loans/total purchase dollar originations, from 66% 2) Subprime - 20% share vs. 6% in 2002 a) about $665 billion originations ($35 billion in 1994) b) 94% combined loan-to-value, on average loan price of nearly $200,000 c) 50% of all subprime borrowers provided limited income documentation since 2004 d) 2/28 ARMs roughly 78% of all subprime e) low delinquency rates through most of 2004, 2005 (record home prices protected marginal quality buyers - refinance into more affordable mortgage or sell for

profit when ARM reset) (http://www.recharts.com/reports/CSHB031207/CSHB031207.pdf, p. 12) 3) 20% share of Alt-A lending vs. 5% in

2002 (between prime and subprime: ‗Alternative-A‘ to standard of conforming, GSE-backed mortgages, $417,000 limit; historically for borrowers with limited funds for down payment and/or blemished credit): a) 20% of total originations (up from 5% in 2002) - used to offset lack of affordability caused by rising home prices b) 81% low/no documentation loans (stated income loans), up from 64% in 2004; referred to as ―liar loans‖ (as (borrowers exaggerate their income) c) 88% combined loan to value (55% of homebuyers took out seconds)[piggybacks] at same time d) 38% interest-only ARMs

(http://www.recharts.com/reports/CSHB031207/CSHB031207.pdf, p. 12)

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2. Stage 2: Credit Risk Counterparty Risk: Loan Quality

Leverage Historically low interest rates, relatively stable economic growth, housing appreciation created demand for mortgages: 1) 1996-2004 - subprime lending rose 489% ($90 billion to $530 billion): low initial interest rates, high ‗reset‘ rates 2) 2000 - 457,000 subprime mortgages 3) 2005 - subprime loans peaked at 2.3 million (above 68% of all nonprime loans, 13.7% of all loans) 4) 2006 - 33% of new mortgage originations were conforming mortgages (2009 - 67%) 5) Wells Fargo, HSBC, New Century - largest subprime originators (29% share) 6) subprime loans - more expensive than

(http://www.dallasfed.org/ca/bcp/2007/images/bcp0703c1.gif) prime loans (lower initial payments, higher rate resets, higher risk of default, lower FICO credit scores, higher debt-to- income ratio) 7) adjustable rates (2/28, 3/27 mortgages) on more than half subprime mortgages

(www.imf.org/external/pubs/ft/gfsr/2007/01/pdf/chap1.pdf, p. 5)

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2. Stage 2: Credit Risk The Lenders

Subprime Lenders 1) 1984-2008 - average 1-year Freddie Mac Adjustable Rate Mortgage of 6.41% (1990s - 5.99% average) 2) 2003 - lowest average rate of 3.76% 3) 2000-2009 - averaged 5.10% 4) 2001-2007 - subprime loans without full documentation rose from 20% to 60% (without borrower's income, assets, credit record, debts/income) 5) 2006 - 47% of total loans: "piggyback," "interest-only‖, payment-option ARMs, mortgages with extended amortization periods, low or no-document-income loans, stated income loans - with predetermined upward adjustments of interest rate at specific time intervals 6) 2000-2007 - loan-to-value ratios grew from 78% to 86.5%

(http://www.nytimes.com/imagepages/2007/08/19/business/20070819_CREDIT_GR RMBS Market APHIC.html) 1) 1994 - $35 billion (less than 5% of total)

2) 2005 - $625 billion (rose 26%/year, 20% of total, 7% of mortgage originations) 3) 2007 - securitized subprime mortgages = estimated $824 billion (14% of outstanding mortgage-related securities) 4) January 2007 - total mortgage debt estimated to exceed $13 trillion (U.S. residential mortgage-related securities totaled around $5.8 trillion) 5) February 2007 - weakening in small subprime mortgage sector spread to higher-rated mortgage products, tranches of collateralized debt obligations 6) 1st half 2009 - $8 billion

(www.imf.org/external/pubs/ft/gfsr/2007/01/pdf/chap1.pdf, p. 4)

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2. Stage 2: Credit Risk Credit Risk

Buyers of Agency Issued Mortgages

Foreign investors, commercial banks, Fannie Mae, Freddie Mac represent largest holders of agency issued debt (securitized by government sponsored entities)

The GSEs‘ share loss has been largely attributed to the proliferation of ―exotic‖ mortgage products such as high CLTV loans, low/no documentation mortgages and interest- http://www.recharts.com/reports/CSHB031207/CSHB031207.pdf, p. 14) March 2007 only/negative amortization loans, which the GSEs have typically chosen to limit their exposure to given the high risk profiles of these products

Credit, Default Risk Increased (to borrowers and lenders)

1) 2006 - private lending institutions issued more than 84% of subprime mortgages (Federal Reserve) 2) private firms made nearly 83% of subprime loans to low- and moderate- income borrowers Federal Reserve) 3) only one of top 25 subprime lenders directly subject to housing law (Community Reinvestment Act) 4) January 2007 - all mortgage debt exceeded $13 trillion (U.S. residential mortgage-related securities totaled around

(http://sg.wsj.net/public/resources/images/NA- $5.8 trillion) AM118_W_HT_N_20070216195653.gif)

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2. Stage 2: Credit Risk Packaging: Risk as a Commodity

Counterparty Risk Commodified

Securitization changed traditional borrower/lender relationship: made it more complicated, broke down lender‘s role: 1) lender sold loan to a new owner (issuer); could no longer restructure loan or accommodate borrower 2) issuer sold securities to investors (entitled them to share of cash paid by borrowers on their mortgages) 3) servicer collected mortgage payments, distributed them to issuer for payment to investors; if borrower could not pay, took action to recover cash for investors (securitization documents imposed limits (http://content.edgar-online.com/edgarconv.img/2010/02/24/0001026214-10- 000010_F71261F7126119A.GIF) on recovery, loan modification)

PC - Mortgage Participation Certificate

Securitized Mortgages 1) homeowners: a) new sources of capital (credit supply) b) more liquid assets, easier to sell c) more efficient market mortgage pricing d) lower mortgage rates for borrowers e) broadener homeownership f) eliminated regional disparities in allocating capital to mortgage lending 2) investors: a) converted non-rated, illiquid loans into supposedly highly liquid, low credit risk securities with competitive rates of return 3) banks: a) shifted interest rate risk of mortgages from banks, thrifts to investors b) sold loans for cash, made new loans

(www.imf.org/external/pubs/ft/gfsr/2007/01/pdf/chap1.pdf, p. 8)

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2. Stage 2: Credit Risk Delivery Boys: Distributed Risk

Separated, Distributed Counterparty Risk via Financial Innovation of Structured Finance (Without Buying Underlying Securities) Pools of high-yield collateral converted to rated debt, variety of risk/return profiles: 1) credit risk varied with volatility of underlying interest rates, maturity and liquidity of contracts, creditworthiness of counterparties (varied with amount bank would lose if counterparty defaulted) 2) securitized Residential Mortgage-Backed Securities (RMBS) pools 3) Credit Ratings 4) Asset-Backed Securities (ABS) pools (commercial mortgage-backed securities, auto loans, credit cards, student loans) 5) Collateralized Debt Obligations (CDO); tranches (debt-recovery: senior, mezzanine, equity) 6) Credit Default Swaps (CDS) guaranteed credit worthiness, reduced risk of failure a) 2003 - about 6 in 10 subprime mortgages securitized (highest percentage ever; source Federal Reserve Bank of St. Louis); b) 2006 - FDIC-insured institutions held $1.2 trillion RMBS c) 2006 - $10.7 trillion ABS market (peaked at $888 billion in U.S.) (http://www.slideshare.net/Calion/modern-finance-presentation) d) until June 2007 - rated AAA e) 2nd quarter 2008 - $585 billion in ABS backed by home equity loans (largest sector) 2000-2007 f) 2008 - $62.2 trillion CDS notional value, a) Moody‟s rated 72,461 tranches of RMBS (totaled $4.7 replacement value of $2 trillion; non- trillion), 5,650 tranches of ABS CDOs ($736 billion) transparent, unregulated OTC market b) 42,625 tranches of RMBS (90% by dollar amount), 2,160 tranches of CDOs (84% by dollar amount)‐‐‐were rated Aaa.

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2. Stage 2: Credit Risk CDOs

Collateralized Debt Obligations

Moody‘s: 1) rated about 80% of all subprime mortgages as AAA (http://www.mortgagebankers.org/files/present/2005/cref/CMBS001.pdf, p. 18) 2) any losses had immediate impact on AAA tranches...and beyond

(http://research.chicagogsb.edu/igm/events/docs/USMPF- final.pdf, p. 27)

(http://s.wsj.net/public/resources/images/P1- AJ988A_NORMA_20071226210452.gif)

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2. Stage 2: Credit Risk The Delivery Boys

‘Shadow Banking’ System Developed (unregulated institutions at heart of crisis)

Hedge funds, investment banks, broker- dealers, private equity funds, structured financial conduits - securitization freed banks to lend more money.

Highly leveraged, lightly regulated; ―regulatory arbitrage‖ encouraged loose standards, trading for quick yields in risky financial products.

(www.bis.org/speeches/sp080403.pdf, p.8)

CDO Issuance (Type)

1) most ABS CDOs classified as cash flow or hybrid structures (concentrated exposure to subprime, other non-agency RMBS) 2) 2006 - peak global CDO issuance of $551 billion (down to $487 billion in 2007) 3) November 25, 2007 - about 9% of 2006- vintage, 14% of 2007-vintage S&P-rated investment-grade CDO tranches downgraded (included about 5% of 2006- vintage, 6% of 2007-vintage tranches initially rated AAA); Moody‟s, Fitch issued similar downgrades

(http://www.financialstabilityboard.org/publications/r_0804c.pdf, p. 47)

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2. Stage 2: Credit Risk The Delivery Boys

‘CDO’ Issuers

2002-2007 - Leaders in collateral debt obligations issuance

2006 - World market topped out at $478.8 trillion (source: NY Times)

2007 - Citigroup was largest issuer: $49.3 billion (source: NY Times)

(http://www.researchrecap.com/wp-content/uploads/2007/11/cdo-issuance.gif) Rating agency downgrades of „structured products‟ led to significant declines in the fair values Collateralized Debt Obligations Invested in Asset-Backed Securities (underlying assets were RMBS tranches of diversified pools of mortgages = ―two-layer‖ securitisation - Collateral Composition securitisation invested in securitisations) (held against counterparty exposure)

1) before 2005 - portfolios of ABS CDOs mainly cash securities 2) after 2005 - CDS referenced individual ABS („synthetic exposures‟ to cater to investors‟ preferences for particular portfolio exposures not available in cash market with cash asset-backed securities)

(www.bis.org/publ/joint21.pdf, p. 5)

―high grade‖ ABS CDOs invest in collateral rated AAA-A 3) 2nd quarter 2009 - „Fair Value‟ of ―mezzanine‖ABS CDOs invest in collateral predominantly rated BBB Collateral Composition (collateral held

against counterparty exposures; collateral http://www.occ.treas.gov/news-issuances/news-releases/2009/nr-occ-2009-114a.pdf, security against credit exposures) p.4)

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2. Stage 2: Credit Risk Swaps Market

Credit Default Swaps (transfer default risk from buyer to insurer)

1) 2006 - banks were largest net buyers of CDS protection; insurers were largest net sellers of CDS protection; banks - largest positions in buy CDS protection, sell CDS protection markets; hedge funds second in both markets; insurers third in both markets 2) June 30, 2007: a) Bank of International Settlements - credit default swaps notional value of $42.6 trillion (market value of $721 billion) (http://www.house.gov/jec/studies/2008/The_US_Housing_Bubble_June_2008_Stud y.pdf, p. 10) b) U.S. banks and saving institutions, sellers of CDS protection had notional exposure of $12.917 trillion (fair value of protection contracts to guarantors was a negative $23.0 billion) 3) March 31, 2008 - U.S. notional exposure increased to $16.441 trillion, fair value declined to negative $474.0 billion

CDS Insurance Market - Unregulated

1) since 2000 - from $900 billion to more than $45.5 trillion (roughly twice size of entire U.S. stock market; far exceeds face value of corporate bonds underlying them) 2) 3rd quarter 2007 - top 25 banks held $14 trillion in credit default swaps (as insurers and insured), up $2 trillion from 2nd quarter; J.P. Morgan largest - 7.8 trillion; Citibank - $3 trillion, Bank of America - (http://graphics8.nytimes.com/images/2008/02/17/business/17SWAP_2_lg.gif) $1.6 trillion

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2. Stage 2: Credit Risk Price of Default Insurance

Credit Default Swaps

September 12, 2008: 1) cost of insuring against Merrill Lynch default for 5 years on $10 million debt - close to $500,000 ($500/year for $10,000 bond) 2) cost for A.I.G. - over $900,000/year ($900/year on $10,000 bond) 3) risky counterparties could not remain in business

(http://sg.wsj.net/public/resources/images/P1- AM923A_LEHMA_NS_20080914192838.gif)

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2. Stage 2: Credit Risk ‘Insurance’ Market Growth

Credit Supply: Unregulated Derivatives Market May 18, 1994 - Government Accounting Office reported (http://archive.gao.gov/t2pbat3/151647.pdf): 1) end of 1992 - at least $12.1 trillion outstanding in derivatives 2) 15 major U.S. dealers handled most derivatives activities 3) no comprehensive industry, federal regulations to ensure risk-management practices by U.S. derivative dealers 4) limited regulatory authority over security, insurance firms' derivatives activities, insufficient risk-disclosure requirements, inadequate information collection standards, inadequate documentation and testing of internal controls, inadequate rules for reporting of derivatives activities 5) 2002 - highly concentrated: top 4 dealer banks counterparties to 91% of interest

(http://graphics8.nytimes.com/images/2008/10/09/business/1009-web- swaps held by U.S. banks; Chase, largest, GREENSPAN.gif) had over 42% of market (source: OCC)

A few risks: credit or counterparty risk, market risk, settlement risk, operating risk, liquidity risk, systemic risk, legal risk, documentation risk

Citigroup (2000-2008)

Citigroup: a) 2007 - $55/share, top issuer of collateralized debt obligations ($49.3 billion of $442.3 billion) b) March 5, 2009 - traded at $0.97/share

(http://graphics8.nytimes.com/images/2008/11/22/business/1123-nat-web-CITI- JUMP.gif)

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2. Stage 2: Credit Risk Profitable ‘Insurance’ Market

‘Financial Engineering’ - Profitable Business Line

1) 2004 - financial services firms earned 28.3% of corporate America‟s total profits (double its average share of profits through 1970s and 1980s) 2) 2007 - share of profits down to 27.4% 3) 2008 - almost $.10 cents of every dollar paid to American work force went to people working at investment banks, other finance companies (up from about $.06 cents or $.07 cents through1970s and 1980s) http://graphics8.nytimes.com/images/2008/09/21/weekinreview/leonhard-b- 650x555.jpg)

AIG FP - Bonuses

1) early 2008 - bonuses approved by board of AIG's financial-products unit (losses beginning to show) 2) late 2005 - AIG FP exited subprime business

$182 billion bailout of company

(http://sg.wsj.net/public/resources/images/MI- AV797A_AIGFP_NS_20090325221650.gif)

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2. Stage 2: Credit Risk The Raters

Counterparty Risk: Credit Rating Agencies

Conflicting Incentives

1) rating agencies paid by firms selling debt to give debt a good rating so they can sell it 2) structured finance became major revenue source for credit rating agencies 3) concentrated issuer market - end of 1992 - 15 major U.S. dealers handled most activities in $12.1 trillion derivatives market

(http://hudson.org/files/publications/Hudson_Mortgage_Paper5_3_07.pdf, P. 10

(http://graphics8.nytimes.com/images/2008/12/06/business/1207-biz- RATINGSweb.gif)

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2. Stage 2: Credit Risk The Raters

Counterparty Risk: Credit Rating Agencies

U.S. NRSROs (Nationally Recognized Statistically Rating Organizations)

(http://www.imf.org/external/pubs/ft/gfsr/2010/02/pdf/text.pdf, p.87)

(http://media.mcclatchydc.com/smedia/2009/10/16/18/20091016_MOODYS_ratings .large.prod_affiliate.91.jpg) http://www.mcclatchydc.com/2009/10/18/77244/how-moodys-sold-its-ratings- and.html

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2. Stage 2: Credit Risk The Raters

Counterparty Risk: Credit Ratings: Inaccuracy of Quantitative Credit Risk Models (Default-Probability Models)

1) presumably based on information on collateral asset pool, CDO deal structure provided by deal arranger (based on its statistical models, analytic methods) 2) lacked historical default data (sometimes used short default histories to predict future behavior failed to take ‗event risk‘ into account: low-probability, high- impact events - effect of mortgage resets on current income, fall in house prices 3) failed to account for possibility of simultaneous default of mortgages across

(http://media.economist.com/sites/default/files/images/20100213/CSR832.gif) country minimal diversification in use of risk models 4) over-reliance on ratings (poor substitute for due diligence)

Wrong Credit Ratings (Fitch’s, Moody’s, Standard & Poor’s)

Misapplied Ratings, Mispriced assets: 1) 3rd quarter 2007-3rd quarter 2008 - number of downgrades almost tripled (spiked to 781 during 1st quarter 2009) 2) Jan. 30, 2008 - S&P downgraded over 6,300 subprime residential mortgage- backed securities, 1,900 C.D.O.‘s. 3) by 2010: a) 53% of 2005 AAA-rated subprime-MBS downgraded to junk status b) 93% issued in 2006 downgraded to junk c) 91% issued in 2007 downgraded to junk

(http://media.cfo.com/images/1006RatingsP53.gif)

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2. Stage 3: Market Risk (2007-2008)

Stage 3: Market Risk/Event Risk (July 2007-December 2008)

House Prices Fell

Mortgage Resets: Current Income Shortfall

Defaults/Collateral Calls

Credit Agency Downgrades

Credit Risk/Funding Risk Interlinked

‘Priceless’ Assets: Insufficient Market Data

Market Illiquidity

Losses, Losses, Losses

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2. Stage 3: Market Risk

(http://www.imf.org/external/pubs/ft/gfsr/2009/01/pdf/chap1.pdf, p. 52)

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2. Stage 3: Market Risk

(http://www.imf.org/external/pubs/ft/gfsr/2009/01/pdf/chap1.pdf, p. 57)

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2. Stage 3: Market Risk Home Prices/Rate Resets

Home Prices Collapsed (Negative Equity)

Home prices fell (had masked credit risk of lax lending standards), housing demand fell, vacancy rates rose, negative equity rose, short sales rose

1) 1990 - LP price index began with value of about 4%; moved within range of zero to 5% until 3rd quarter 1998 2) 3rd quarter 2005 - peak of nearly 16% 3) 4th quarter 2008 - dropped sharply to about negative 12% ------a) 1990 - FHFA index began with value of about 5%, dropped to about 1% b) 2005 - peak of about 10% c) 2008 - fell to about negative 8%

(http://www.federalreserve.gov/pubs/bulletin/2010/articles/profit/gifjpg/15.gif)

Mortgage Resets Wiped Out Current Disposable Income

1) 2nd quarter 2006 - housing prices peaked 2) ARMs (adjustable rate mortgages) reset 3) unemployment rose 4) delinquencies, defaults, foreclosures rose

Consumer net worth declined, delinquency and foreclosure rates rose, private mortgage- backed securities issuance dried up, subprime market collapsed, availability of credit tightened.

(http://www.dallasfed.org/research/eclett/2007/images/el0711c6.gif)

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2. Stage 3: 2007-2008 Concentrated Risk: Lower Capital

VaR - Market Standard Risk Model

Value at Risk (VaR) - statistical measure to quantify uncertainty (how much can I lose?): estimate of maximum loss that can occur, over specified horizon at certain confidence level, in normal markets: 1) applied to just about any asset class 2) recent historical data on variety of variables (diversification, leverage, volatility - not individual characteristics) 3) put wide range of holdings on similar analytical footing (can measure individual portfolios and firmwide risk) 4) short-term measure (calculated daily), expressed as single dollar figure 5) didn‘t measure option-related leverage (http://www.chicagofed.org/digital_assets/images/publications/annual_report/2009/si debar02.gif) 6) didn‘t measure liquidity risk 7) ignored ‗small‘ likelihood of extreme, destructive events, magnitude of loss Securitization - Distributed Risk 8) assumed normal volatility of asset prices, VaR - Concentrated Risk (by lowering capital requirements) statistical correlation between prices 9) could be manipulated, kept low - banks compensated for generating steady profits with low risks (credit default swaps) 10) didn‘t incorporate broad historical periods with extreme conditions (‗black swans‘), abnormally large market adjustments 11) couldn‘t accomodate new structured products (no market history) 12) 2004 - SEC allowed firms to calculate internal VaR to meet their capital requirements = highly levered, undercapitalized securities industry 13) proper model requires judgment and technical adjustment over time

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2. Stage 3: 2007-2008 Concentrated Risk: Lower Capital

VaR - Market Standard Risk Model

1) evolution of the average unit value-at-risk over time (Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, Morgan Stanley) 2) 4th quarter 2007-1st quarter 2008 - average unit value-at-risk increased sharply 3) UBS - 50 VaR exceptions for 2008, 29 for 2007 (should have been about 2.5 exceptions, trading days when actual losses exceeded VaR predictions) at 99% confidence level 4) Deutsche Bank - 35 VaR violations in 2008, 12 violations in 2007; around 10 (http://www.newyorkfed.org/research/staff_reports/sr328.pdf, p.23) times higher than theory predicts 5) Credit Suisse - 25 VaR exceptions in 2008, 9 in 2007; implies above six times more real losses than theoretically forewarned (at 99% confidence level) 6) Morgan Stanley - 18 violations in 2008 at 95% level 7) Bank of America - 14 violations in 2007 at 99% level 8) JP Morgan - 8 in 2007 at 99% confidence level (http://www.futuresmag.com/Issues/2010/December- 2010/Pages/The-number-that-killed-us.aspx) 9) Goldman Sachs also relied on Entity Master Management Application to assess interconnected counterparty risk (creditworthiness of those with whom it did business)

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2. Stage 3: Market Risk Capital Ratios

FDIC Bank Capital Ratio Definitions (March 31, 2010) Basel II Capital Accord capital framework: 1) designed to align charges on banks‘ assets (securitization positions) more closely to underlying economic risk of exposure 2) changed international regulatory capital

(http://www2.fdic.gov/qbp/2010mar/grbook/graphs/DRBCCAT.gif) system (how banks measured risk and allocated capital) - internal ratings-based (IRB) approach to regulatory capital 3) curbed Basel I incentive for banks to conduct regulatory arbitrage for short- term profit (had reduced regulatory capital requirements, removed higher quality assets from balance sheets via securitization; compensated with cash bonuses based on short-term sales volume and marked-to-market profits, not long- term profitability of investing decisions

Market-Based vs. Bank Holders

June 2007 -Strains began to emerge in the leveraged syndicated loan market

August 2007 - problems appeared in asset- backed commercial paper, term bank funding markets

December 2007 pressure in short-term funding markets, worsened financial strains, heightened market volatility

(http://www2.fdic.gov/qbp/2010mar/grbook/graphs/QREGCAP.gif)

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2. Stage 2: Market Risk Concentrated Derivatives Market

Concentrated Market: 5 Banks Dominate Commercial Banks’ Derivatives Activities (J.P. Morgan Chase, HSBC, Citibank, Bank of America, Wachovia) 1) 2003-2007 - credit derivative contracts grew at 100% compounded annual rate 2) 3rd quarter 2008: a) 3 banks owned 92% of total notional amount of derivatives contracts ($175.8 trillion for top 25 banks), 87% of industry net current credit exposure (977 banks reported derivatives activities) b) 5 banks owned 97% (http://www.occ.gov/news-issuances/news-releases/2008/nr-occ-2008-152a.pdf; c) interest rate products comprised 78% of Table 1) total derivative notional values d) notional value of credit derivative contracts: $16.1 trillion d) credit default swaps comprised 99% of credit derivatives (source: Office of the Comptroller of the Currency)

Bank Exposure, Risk To Securitization

1) commercial banks‘ exposure to securitization risk (especially risk of credit derivatives) rose sharply 2) banks‘ portfolio positions were similar (based on similar credit and market risk models used to comply with the Basel 2 standards) 3) banks‘ portfolios were concentrated, not diversified 4) wanted/tried to sell portfolio positions at same time 5) first half 2007 - problem isolated within subprime mortgage markets

(http://www.imf.org/external/pubs/ft/fandd/2008/06/images/caruana1.gif)

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2. Stage 3: Market Risk Concentrated Derivatives Losses

Credit Derivatives

Credit default swaps represented 99% of all credit derivatives notionals

(source: Call Reports, http://www.occ.gov/news-issuances/news-releases/2008/nr- occ-2008-152a.pdf; p. 5)

4th quarter 2007: 1) notional value of derivatives held by U.S. commercial banks plunged by $8 trillion (for first time) 2) U.S. banks lost $9.97 billion on derivatives trading (for first time)

Nearly all trouble concentrated in ―credit swaps‖ (blue line) — supposed to protect investors

(http://www.occ.gov/news-issuances/news-releases/2008/nr-occ-2008-152a.pdf; graph 6A)

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2. Stage 2: Market Risk Concentrated Derivatives Market

Investment Banks Leveraged Portfolios of Derivative Securities

1) financial institutions financed growth with leverage 2) investment banks: a) increased leverage (held large pools of mortgage assets financed through short- term repurchase agreements) b) increased the mismatch of long-term assets financed with short-term liabilities 3) decreased capital adequacy 4) assumed illiquidity - no way to value collateral that hedged funds (credit quality, default potential), as markets fell

(Note: Leverage ratio calculated as total assets divided by total stockholders' equity. Source: Company 10-K SEC filings;http://www.bos.frb.org/news/speeches/rosengren/2009/041509/figure4.gif) Average leverage for all banks since 1992

(Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, Morgan Stanley)

1998 peak in leverage - Long-Term Capital Management crisis

2007-2008 peak in leverage - credit crisis

(http://www.newyorkfed.org/research/staff_reports/sr328.pdf, p. 25)

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2. Stage 2: Market Risk Funding Risk

Short-Term Funds Froze: Confidence in Credit Quality Lost

Asset-Backed Commercial Paper sold by conduits (30-day average maturity), with credit guarantees, or ‘liquidity enhancements‘, to risk-averse money market funds (required by Rule 2a-7, of Investment Company Act of 1940, to only hold securities that had "minimal credit risks‖, i.e. AAA ratings; sales financed off-balance- sheet assets to avoid minimum-capital regulations; effectively increased leverage, allowed more borrowing to buy lower quality assets) 1) July 31, 2007 - two Bears Stearns hedge (http://pages.stern.nyu.edu/~sternfin/pschnabl/kacperczyk_schnabl.pdf, p. 38) funds filed for bankruptcy (could not sell large positions of downgraded securities) 2) August 7, 2007: a) sub-prime mortgage loans began to go August 2007-December 2007 - ABCP outstanding dropped bad, defaults on CDOs, MBOs increased $350 billion ($1.18 trillion outstanding to $745 billion ) b) BNP Paribas suspended redemptions from three funds c) banks hoarded cash (extremely hesitant to lend); risk spreads for interbank funds widened sharply d) investors refused to ABCP roll-overs, yields on new ABCP issues spiked 3) maturity mismatches - refinancing of maturing commercial paper (short-term funding) stopped, could not be rolled over 4) commercial banks forced to: a) report assets in conduits on balance sheets b) hold positions, subject to market conditions (loss), far longer than planned c) failed to anticipate effects of sudden (http://pages.stern.nyu.edu/~sternfin/vacharya/public_html/acharya_schnabl.pdf, p. liquidity freeze on regulatory capital 44)

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2. Stage 3: Market Risk Housing Index/Bank Index

Housing Index Broke ($HGX :Philadelphia Board of Trade Index)

1) July 29, 2005 - traded at high of 587.32

2) May 23, 2007 - broke down from 241.95

3) August 2007 - housing market weakness apparent:

(http://apps.cnbc.com/cgi- a) investment fund bankruptcies and bin/upload.dll/file.gif?z0383110az1f7cf6c1563e4157b800174af33cc1b9) redemption halts (inability to place a

value on portfolio holdings) b) credit ratings downgrades

4) 2008 - significant decline

S & P Bank Index Broke (^BIX)

February 12, 2007 - traded to high of 412.62

July 9, 2007 - broke down from 392.29 as prices on subprime mortgage-related securities fell

2008 - significant decline

(http://finance.yahoo.com/echarts?s=^BIX+Interactive#chart1:symbol=^bix;range= my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=off;source =undefined)

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2. Stage 3: Market Risk - Systemic Vulnerability (Everyone Linked)

(http://media.ft.com/cms/f3369e52-daca-11de-933d-00144feabdc0.jpg)

Global finance: 1) “complex adaptive system” 2) complex linkages among credit and funding markets (and, ultimately, solvency) 3) too complex and too homogeneous - at the same time; banks diversified business lines in a similar way, used same risk models, became inextricably interdependent; similar diversification amongst competitors ultimately spelled non-diversification and heightened risk (http://www.ft.com/cms/s/0/d0e6abde-dacb-11de-933d-00144feabdc0.html#ixzz1Ac6g0s7v)

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2. Stage 3: Market Risk Everyone Linked

Subprime Mortgage AAA-Tranche Pricing (2007-2008): Asset-Backed Credit Default Swaps on Subprime Residential Mortgage-Backed Securities

ABX AAA home equity indices (started first, second halves of 2006 and 2007): 1) June 2006 - relatively low-paying AAA- rated tranches of subprime CDOs offered twice premium of typical AAA credit- default swap of corporation; losses only if ‗unlikely‘ economic catastrophe hit all markets hit (expected it wouldn‘t happen or out of market beforehand)

(Source: Markit; prices, from January 1, 2007 to December 31, 2008, of ABX index 2) March 2009 - sold from $.40 cents to $.80 of AAA tranches of mortgage-backed securities issued in first and second halves of cents on the dollar 2006 and 2007; ABX index - 20 representative collateralized debt obligations [CDOs] of subprime mortgages; AAA tranche index represents an initial equally- weighted portfolio of the AAA tranches of each CDO); First ABX index, of reference obligations http://www.cepr.org/meets/wkcn/1/1716/papers/Acharya_Richardson_CriticalRevie ranging from triple-A to triple-B minus wArticle.pdf, p. 26) (ABX.HE started 1/2006 by Markit.com) 1) February 2007 - lower-rated indexes fell; BBB- dropped from 90.85 to 64.46 (down 29% in one month) 2) June 2007 - rising default rates precipitated index declines 3) August 2007 - unprecedented decline in value of highly rated tranches; market disappeared for sub-prime, Alt-A mortgage pools: a) portfolio managers didn‘t have enough information about the price or (http://www.math.umn.edu/finmath/modeling/IMAwebsite/vinar-orig.jpg) characteristics of underlying securities

Markit ABX.HE 07-01 Indices (January 2, 2007 –March 17, 2008) b) didn‘t know whether prices of underlying assets accurately reflected expected credit losses or whether illiquidity had already been factored into the prices 3) May 2008 - lowest rated sub-prime tranches fell to near zero

(http://www.bos.frb.org/news/speeches/rosengren/2008/032708.pdf, Figure 4)

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2. Stage 3: Market Risk Everyone Linked

Interconnected Institutions

June 2008: 1) Goldman Sachs key derivative counterparties, interconnected synthetic exposure 2) $20 trillion in notional counterparty exposure

(http://www.fcic.gov/hearings/pdfs/2010-0630-chart-derivatives-counterparties.pdf)

September 16, 2008-December 31, 2008 - AIG paid out $22.4 billion of collateral related to credit default swaps: a) $27.1 billion to cancel swaps (par value of approximately $62 billion) b) $43.7 billion collateral posted to satisfy obligations of its securities lending operation

(http://graphics8.nytimes.com/images/2009/03/18/business/0318-biz-AIG.jpg)

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2. Stage 3: Market Risk Everyone Linked

CDR Counterparty Risk Index (health of CDS dealers)

1) credit risk of counterparties to most contracts traded in CDS market (banks, brokers) 2) averages market spreads of credit default swaps of 15 major credit derivatives dealers (ABN Amro, Bank of America, BNP Paribas, Barclays, Citigroup, Credit Suisse, Deutsche, Goldman, HSBC, Lehman, JP Morgan, Merrill, Morgan Stanley, UBS, Wachovia) (http://av.r.ftdata.co.uk/files/2008/06/1411.png) 3) 2008 - Bear Stearns-induced peak of 250 basis points 4) June 13, 2008 - about 118.7 basis points

CDR Government Risk Index

Tracks credit default swap contracts written on credit default swaps on debt of sovereign nations (US, UK, Germany, France, Italy, Spain, Japan)

(http://av.r.ftdata.co.uk/files/2009/03/5651.png)

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2. What Happened (2003-2008)

(http://www.bloomberg.com/apps/quote?ticker=MOVE:IND)

MOVE - Merrill Option Volatility Estimate - (bond volatility index = proxy for risk aversion in fixed-income): yield curve weighted index of the normalized implied volatility on 1-month Treasury options (bond market‟s equivalent of the Chicago Board Options Exchange Market Volatility Index; popular measure of the implied volatility of S&P 500 index)

Tendency for the index to trade between 80 and 120: 1) 80 represents extreme investor complacency, low demand for risk protection 2) 120 represents extreme fear, uncertainty 3) below 80 - before 1991 recession, 2000 Nasdaq bubble, 2008 credit crisis

Post-Lehman bankruptcy high (October, 14, 1008) - index fell 80%

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2. Stage 3: Market Risk

(http://www.brookings.edu/~/media/Files/rc/papers/2008/0516_credit_squeeze/0516_credit_squeeze.pdf, p. 51)

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2. Stage 3: Market Risk Bear Stearns Collapse

Bear Stearns Fire Sale

1) 2000-2005: a) Bear Stearns‘s share of issuances of subprime mortgage-backed securities jumped from < 1% to > 4% b) firm‘s share of subprime issuances grew at almost twice market‘s rate of 55% compounded annually 2) 2006 - 10.7% of total Alt-A issuances 3) February 2007 - short-term funding

(http://www.ici.org/pdf/ppr_09_mmwg.pdf, p. 52) pressures (rising delinquencies on recently originated subprime mortgages) 4) June 1, 2007 - traded at $153.95/share

(market value greater than $25 billion); down nearly 50% by February 29, 2008 5) November 2007 - notional value of $13.4

trillion in derivative contracts (futures, options, swaps, etc.) 6) 2007:

a) earnings declines as cost of insuring against default rose almost nine-fold b) $11.1 billion in equity, levered 33:1 (via overnight short-term funds) 7) March 2008 - illiquidity - lenders refused short-term credit roll-over; clients withdrew $17 billion from firm (equity capital down to $2 billion) 8) credit rating cut from AAA to BBB 9) Bear Stearns, investors, underestimated amount of ‗credit event‘ risk associated with holding leveraged portfolio of securities backed by low quality mortgages in illiquid markets (http://www.ici.org/pdf/ppr_09_mmwg.pdf, p. 53)

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2. Stage 3: Market Risk Bear Stearns/A.I.G.

A.I.G. Losses

1) 2008: a) 1st quarter - announced $7.8 billion loss (biggest loss in its history) b) 2nd quarter - announced $5.3 billion c) August 2008: 1) $69 billion borrowings outstanding in A.I.G. securities lending division 2) invested cash collateral in mortgage- backed securities (not U.S. Treasuries) 3) September 15, 2008 - A.I.G. credit rating lowered, met margin calls; could not sell MBS to return cash in exchange for customers‘ return of borrowed securities 4) November 2008 - alternate source of funds: Federal Reserve, U.S. Treasury ($128 billion by end of 2008)

(http://graphics8.nytimes.com/images/2008/09/17/business/17aig-graf01.jpg)

AIG Bankruptcy 1) 1998 - began selling ‗unhedged‘ CDS 2) 2004 - began selling unhedged swaps on collateralized debt obligations ($80 billion multisector CDOs by 2006) 3) August 2007 - Goldman Sachs made collateral call: wanted $1.5 billion in collateral back (assets backing securities worth less); wanted $3 billion by October 4) November 2008 - alternate source of funds: Federal Reserve, U.S. Treasury ($128 billion by end of 2008) 5) total government rescue = $182 billion

(http://s.wsj.net/public/resources/images/P1- AN500_AIGJMP_NS_20081102184924.gif)

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2. Stage 3: Market Risk Lehman

Lehman Brothers Bankruptcy

Used accounting device (―Repo 105‖) to manage its balance sheet: made leverage look lower, capital position stronger (temporarily removed about $50 billion of assets at end of first, second quarters of 2008); did not disclose use of accounting maneuver to Government, rating agencies, investors, own Board of Directors)

1) June 1, 2007 - traded at $153.95/share (http://blogs.reuters.com/rolfe-winkler/files/2010/03/repo105.jpg) (market value greater than $25 billion) 2) September 15, 2008 - fourth-largest investment bank in US filed for bankruptcy (largest in U.S. history) a) proprietary trading in highly leveraged broker-dealer transactions on narrow capital base b) unsecured debts: 1) approximately $138 billion in senior bond debt 2) $17 billion in subordinated, junior bond debt c) assets of $639 billion

(http://chart.bigcharts.com/custom/wsjie/wsjie-chart- 335.img?symb=Leh&sid=12484&time=10yr&freq=1dy&compidx=aaaaa%7E0&co mp=&ma=0&maval=60&uf=&lf=1&type=64&hed=Lehman+Brothers+Holdings&d ek=¬e=&size=3&style=2082&thumbchart=weekly&mocktick=1)

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2. Stage 3: Market Risk Liquidity Indicators

(Il)liquidity Indicators

A) TED spread (between 3-month Treasury bill [T] rate and 3-month LIBOR [ED - ticker symbol for eurodollar futures contract]); LIBOR - indicator of interbank credit risk 1) long-term average of about 50 basis points 2) October 10, 2008 - 4.65% (more than 465 basis points at peak of credit panic) = uncertainty, fear, flight to safety,

(http://cop.senate.gov/documents/cop-111610-report-metrics.pdf,, p.7) transparent pricing of securities

======B) LIBOR-OIS spread - indicator of

illiquidity in money markets (LIBOR - world‘s most widely used benchmark for cost of unsecured short-term borrowing in money markets; interest rate at which banks borrow unsecured funds from other banks in London wholesale money market for 3 months; OIS - overnight indexed swap; indication of pure counterparty risk) 1) August 2007 - 10 basis point spread 2) September 14, 2007 - rose to 85 basis point spread (Bank of England rescued Northern Rock) 3) December 6, 2007 - 108 basis points (record high) 4) March 17, 2008 - 83 basis points (up 19 basis points on Bear Stearns‘s collapse)

(www.research.stlouisfed.org/publications/es/08/ES0825.pdf) 5) October 10, 2008 - LIBOR rate peaked at 4.819%; LIBOR-OIS 365 basis point spread

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2. Stage 3: Market Risk Liquidity Indicators

(Il)liquidity Indicators

A) TED spread (between 3-month Treasury bill [T] rate and 3-month LIBOR [ED - ticker symbol for eurodollar futures contract]) 1) long-term average of about 50 basis points 2) October 10, 2008 - 4.65% (more than 465 basis points at peak of credit panic) = uncertainty, fear, flight to safety, transparent pricing of securities

======B) LIBOR-OIS spread (LIBOR - world‘s most widely used benchmark for cost of unsecured short-term borrowing in money markets; interest rate at which banks borrow unsecured funds from other banks in London wholesale money market for 3 months; overnight indexed swap)

1) August 2007 - 10 basis point spread 2) September 14, 2007 - 85 basis point spread (Bank of England rescued Northern Rock) 3) December 6, 2007 - 108 basis points

4) March 17, 2008 - 83 basis points (up 19 (http://cop.senate.gov/documents/cop-111610-report-metrics.pdf,, p.7) basis points on Bear Stearns‘s collapse) 5) October 10, 2008 - LIBOR rate peaked at

4.819%; LIBOR-OIS 365 basis point spread

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2. Stage 3: Market Risk - Bank Losses

(http://av.r.ftdata.co.uk/files/2009/01/4214.gif)

Banks: Loss of Market Value (2nd Quarter 2007 - January 20, 2009)

Massive declines in the market capitalizations of major global banks (in $ billions)

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2. Stage 3: Market Risk Everyone Linked

‘Blue Chip’ Implosion

Since October 2007 (market peak) - number of companies trading at $10 or less in Standard & Poor‘s 500-stock index increased tenfold

(http://graphics8.nytimes.com/images/2009/03/06/business/06shares-graf01.jpg)

Cumulative Returns/Different Financial Models

Global banks, large complex financial institutions (LCFIs), insurance companies and hedge funds: 1) similar pattern before and after crisis 2) less diversity, greater complexity

Asset-Backed Securities Market Tanked (http://www.bankofengland.co.uk/publications/speeches/2009/speech386.pdf, p. 40) Debt-securitization had been source of roughly 60% of all credit in the U.S.

(http://graphics8.nytimes.com/images/2009/10/07/business/1007-biz- SHADOW1web.gif)

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2. Stage 3: Market Risk - Everyone Linked

Europe’s Web of Debt

(http://graphics8.nytimes.com/images/2010/05/02/weekinreview/02marsh-image/02marsh-image-custom1-v3.gif)

(size of circles, width of arrows drawn to scale: relative size of debt)

Global Bank Exposure

1) European debt is highly interconnected 2) European bigger problem than U.S. subprime crisis

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2. Stage 4: Rescue: Liquidity/Solvency (2008-2010)

Stage 4: Liquidity, Solvency

Credit Markets Frozen

Fed:

Foreclosures

Government Intervention

Government Programs

Government Regulation

Loss Tally

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2. Stage 4: Rescue: Liquidity/Solvency Homeownership Costs

High Cost of Homeownership

1) 1995: a) median home prices about 324% of median income (about $34,000, median home sale price about $110,000) b) housing debt-to-income ratio: 22.69% 3) 2000: a) median home prices 331% of median income (about $42,000, median home sale price about $137,000) b) housing debt-to-income ratio: 23.43% 3) 2005: a) median home prices 473% of median income (about $46,000, median home sale price about $220,000) b) housing debt-to-income ratio: 26.83% 3) 2009: a) median home prices 363% of median income (about $48,000, median home sale price about $170,000) b) housing debt-to-income ratio: 18.84%

(http://www.visualeconomics.com/wp-content/uploads/2009/11/ve-home-prices.png)

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2. Stage 4: Rescue: Liquidity/Solvency Homeowners Debt

Household Debt (increase in household indebtedness after 1997 relative to increase in household income) 1) 1950-2001 - steady increase in household debt-to-income ratio 2) 2001-2007 - ratio rose by more than in prior 45 years 3) 1997-2007 - inflation-adjusted per-person debt increased more than 80% (largest increase over 10-year span since 1960s) 4) 2009 - ratio of housing-related debt to housing wealth peaked at 65% (25% higher than any time since 1950)

Household Savings 1) 2nd quarter 2006 - net household borrowing peaked at around $1.34 trillion 2) end 2006 - loan-to-value ratios (loan (http://www.stlouisfed.org/publications/re/2010/b//images/debt_income.png) amount as % of property value) rose to 86.5% (78% in 2000) 2) end 2008 - net household borrowing turned negative (first time since Federal Reserve reported Flow of Funds data in 1952); personal saving rate jumped from all time low of 1.2% of disposable personal income (on a quarterly basis) in third quarter of 2005

Household Balance Sheets 1) 2000-2008 - household debt-to-assets ratio rose from 13% to a peak of 22% 2) 2001-2006 - home prices, stock market gains masked increase in household debt 3) 2007 - collapse of asset prices led to a tremendous increase in ratio of total debt to total assets in U.S. households

(http://www.clevelandfed.org/CFFileServlet/_cf_image/_cfimg- 8842398293245383438.PNG)

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2. Stage 4: Rescue: Liquidity/Solvency Homeowners Equity

Home Equity

1) early 2006-early 2009 - 65% of U.S. home-owning households, with any mortgage debt outstanding, lost $6 trillion in homeowners‘ equity (virtually all of it) 2) major factor driving mortgage-foreclosure rates to historic highs 3) 1st quarter 2008: a) nearly 8.5 million homeowners had negative or no equity in their homes (more than 16% of all homeowners with a mortgage; source: Moody‘s Economy.com) b) $9.12 trillion in homeowner equity from $9.52 trillion at end of 2007 c) total mortgage debt rose to $10.6 trillion from $10.53 trillion at end of 2007

(http://weblogs.baltimoresun.com/business/realestate/blog/HomeownerEquitySmall.j d) total net worth dropped to $55.97 trillion pg) from $57.67 trillion at end of 2007

4) 1st quarter 2010 - almost quarter of nation‘s mortgage holders owed more than homes were worth (source: Zillow.com)

Equity Versus Debt Home Equity

2nd quarter 2008: 5) 53.8% equity in homes (as % of real estate value) from about 80% in 1950; decline in equity accelerated in 1980s with rise in use of home equity loans 6) 46.2% total mortgage debt (as % of real estate value) from about 20% in 1950 7) largest increase in household debt in recent history preceded U.S. economic downturn (starting in 2007)

(http://www.nytimes.com/interactive/2008/07/20/business/20debt-trap.html)

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2. Stage 4: Rescue: Liquidity/Solvency Unemployment Rose

Unemployment Rose

1) autumn 2008 - job losses increased, unemployment rate jumped 2) since November 2008 - private payroll employment fell 600,000 per month (160,000/month over first 8 months of 2008) 3) December 2008 - 7.2%, 16-year high; businesses cut 2.6 million jobs in 2008 (source: U.S. Labor Department) 4) January 2009 - civilian unemployment rate reached 7.6%, highest since 1992 (vs. 4.9% in December 2007) 5) December 2009 - above 10%, 15.3 million Americans out of work

Job Growth by Decade:

(http://www.federalreserve.gov/BoardDocs/RptCongress/annual08/sec1/charts/civili 1940s - 38% an_unemployment_rate.gif) 1950s - 24% 1960s - 31% 1970s - 27% 1980s - 20% 1990s - 20% 2000s - 0%

(SOURCES: Bureau of Labor Statistics; Bureau of Economic Analysis; Federal Reserve) (http://www.washingtonpost.com/wp- dyn/content/graphic/2010/01/01/GR2010010101478.html)

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2. Stage 4: Rescue: Liquidity/Solvency Household Defaults

Household Defaults Rose

Delinquencies by Type

1) sub-prime lending problems: mortgage size, debt service, housing prices - people re-financed, added other debt to new, larger mortgages (or cashed-out equity) 2) delinquencies/defaults: a) more correlated with lending standards than employment b) greater for homeowners with house price appreciation from 2002 to 2006 than for those with no previous rise in home value 3) 2006 - 1.2 million foreclosure filings (1 in http://fdic.gov/bank/analytical/quarterly/2010_vol4_1/Images/chart8.GIF) every 92 U.S. households, up 42% from 2005); destabilized housing market, more pressure on home prices 4) 2009 - estimated 2.82 million homes entered foreclosure (up from estimated 2.28 million foreclosures in 2008)

Delinquencies by Year

2005-2006 - ―...historically large fraction of [adjustable-rate mortgages (subprime ARMs) with low initial rates] had high loan- to-value ratios, often boosted by the addition of an associated junior lien or "piggyback" mortgage. When house prices decelerated, borrowers with high loan-to-value ratios on their loans were unable to build equity in their homes; making refinancing more difficult, and also faced the prospect of significantly higher mortgage payments after the initial rates on the loans reset.‖ (source: (http://media.ft.com/cms/7da1ea66-24d8-11dc-bf47-000b5df10621.gif) Federal Reserve Board ‗Monetary Policy Report submitted to the Congress on February 27, 2008‘)

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2. Stage 4: Rescue: Liquidity/Solvency Foreclosures

Negative Equity

2008 - 8.8 million Americans owed more on their homes than they are worth (10.3% of total, first time since )

Direct correlation between negative equity and foreclosures

1st quarter 2010 - 11.2 million (24%) of all residential properties with mortgages in negative equity (source: FirstAmerican CoreLogic)

3rd quarter 2010 - 27.5% of all mortgaged residential properties in negative equity or near-negative equity (< 5%) positions

(http://graphics8.nytimes.com/images/2008/02/22/business/2008homesgraphic.jpg)

Banks Foreclosed

Rising vacancy rates, reduced housing demand, falling home prices, negative equity, short sales: 1) since April 2005 - banks seized almost 3.1 million properties 2) April 2009 - 142,064 default notices (peak) - defaults driven by income decline, negative equity 3) March 2010 - 158,105 foreclosure auctions (record); 4) May 2010 - 93,777 bank repossessions (up 44% from May 2009); 1 of every 400 households received a foreclosure filing) 5) September 2010 - lenders seized 102,134 properties (record; source: RealtyTrac Inc.) (http://en.wikipedia.org/wiki/File:Foreclosure_Trend_-_2007.png)

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2. Stage 4: Rescue: Liquidity/Solvency Foreclosures Screwed Up

Top Mortgage Servicers (June 30, 2010)

Collected mortgage payments, distributed them to issuer for payment to investors; if borrower could not pay, took action to recover cash for investors (securitization documents imposed limits on recovery, loan modification).

‗Robo Signers‘ Embarassment

(http://graphics8.nytimes.com/images/2010/10/14/business/14mortgage- graphic/14mortgage-graphic-popup-v2.jpg)

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2. Stage 4: Rescue: Liquidity/Solvency Credit Freeze

Credit Dried Up: Banks Tightened Lending Standards

1) On prime and nontraditional mortgages; lending freeze pushed bankruptcy numbers higher because debtors could not borrow from new sources of credit to pay existing debts 2) summer 2007 - interbank credit market froze; bank funding liquidity seized 3) 2009 - FDIC estimated 2.82 million homes entered foreclosure (vs. estimated 2.28 million foreclosures in 2008) 4) December 2009 - about 32% of home sales nationwide were distressed or foreclosure related (FDIC).

(http://fdic.gov/bank/analytical/quarterly/2010_vol4_1/Images/chart11.GIF)

Banks Made Fewer Loans

1) loan demand weakened, credit conditions tightened, total loans on banks' books contracted

2) all major categories of loans declined significantly

(http://www.federalreserve.gov/monetarypolicy/gifjpg/MPR710_C45.gif)

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2. Stage 3: Rescue: Liquidity/Solvency Prime Loans Foreclosed

Prime Loans Entered Foreclosure

Mortgage Bankers Association National Delinquency Survey (2nd quarter 2009): 1) one in eight U.S. households with mortgages was in foreclosure or behind on its mortgage payments 2) 13.2% of mortgages on homes with one to four units were at least a month overdue or in the foreclosure process, up from 12.1% in the first quarter, 9% a year earlier 3) deteriorating prime fixed-rate loans increasingly behind steady rise in delinquencies, foreclosures (9% due or in foreclosure, up from 5.35% in 2008) 4) prime loans accounted for 58% of foreclosure starts (up from 44% in 2008) 5) prime loans accounted for 1 in 3 foreclosure starts (up from 1 in 5) 6) subprime mortgages accounted for 33% of foreclosure starts (down from 49%) 7) Florida (23% of mortgages past due), Nevada, Arizona, California accounted for large part of foreclosures in the U.S. (fell to 44%, from 46% in the first quarter)

4th quarter 2009 - past-due rate for prime

(http://online.wsj.com/article/SB125082120504548471.html) loans near a record high 6.7% (35% of the foreclosure starts during the quarter)

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2. Stage 4: Rescue: Liquidity/Solvency Federal Reserve: Last Resort

Federal Reserve: Lender of Last Resort

A) Traditional policy tools: 1) changes to the federal funds rate target 2) loans made through the discount window

B) New tools: to restore liquidity to impaired markets, push down lending spreads to more typical levels: 1) ‗liquidity easing‘ 2) ‗quantitative easing‘ 3) ‗credit easing‘ - extend credit or purchase securities, mix of assets from private sector to ensure healthy financial institutions have access to sufficient short-term credit): a) lending to financial institutions (rose sharply in September 2008) b) providing liquidity to key credit markets

(http://www.clevelandfed.org/CFFileServlet/_cf_image/_cfimg- c) purchasing longer-term securities 7829722909826476820.PNG)

Liquidity Easing’ - lending of government securities in exchange for illiquid securities; currency swaps

1) December 2007 - : auctioned funds to depository institutions; efficiently distributed liquidity; extended currency swap lines with European Central Bank, Swiss National Bank

2) 2008 - Term Securities Lending Facilities, Primary Dealer Credit Facility to deal with shortage of collateral; extended borrowing terms, expanded types of collateral so primary dealers could borrow Treasury securities; authorized Federal Reserve Bank of New York to create lending facility for primary dealers.

(www.clevelandfed.org/CFFileServlet/_cf_image/_cfimg- 5658405969793819750.PNG)

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2. Stage 4: Rescue: Liquidity/Solvency Federal Reserve: Last Resort

Federal Reserve: Lender of Last Resort

Financial institutions did not necessarily transfer Fed-supplied liquidity to credit markets, did not address credit strains in nonbank markets.

Targeted specific lending markets many companies depend on for short- and long- term financing: 1) money market mutual funds - provide liquidity backstop (September 20, 2008) 2) commercial paper market - Commercial Paper Funding Facility (October 7, 2008) 3) Maiden Lane LLCs - pools of assets Fed has lent against to stabilize specific companies and asset classes 4) Term Asset-Backed Securities Loan Facility (November 2008) - liquidity, (http://www.clevelandfed.org/CFFileServlet/_cf_image/_cfimg32178415479566184 capital to consumer, small business loan 83.PNG) asset-backed securities markets

‘Quantitative Easing’ - purchase of government, government-guaranteed securities to improve conditions in private credit markets:

1) November 2008 - announced plans to purchase direct obligations of housing- related government-sponsored enterprises specifically Fannie Mae, Freddie Mac, Federal Home Loan Banks to increase price of securities, lower rates paid for mortgages 2) January 2009 - began purchasing mortgage-backed securities (up to $100 billion in GSE obligations, $500 billion in (http://www.clevelandfed.org/CFFileServlet/_cf_image/_cfimg50439138292685406 03.PNG0 mortgage-backed securities)

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2. Stage 4: Rescue: Liquidity/Solvency Federal Reserve: Last Resort

Nontraditional Federal Reserve Policies (chronologically) Federal Reserve: Lender of Last Resort

Evolution of Federal Reserve‘s Balance Sheet - Fed transformed:

1) from monetary authority with minimal role in credit intermediation 2) operating objective to indirectly influence fed funds market 3) large, fundamental quasi-investment bank role in capital markets 4) expanded lending to non-traditional counterparties, broadened acceptable collateral against which it would lend, lengthened maturity of lending (www.fcic.gov/hearings/pdfs/2010-0226-Kroszner.pdf, p. 13)

Credit Easing Policy Tools

1) December 2007 - Federal Reserve began to establish new lending facilities 2) September 2008: a) allowed supply of bank reserves to expand rapidly (after Lehman bankruptcy, AIG seizure) b) announced Supplementary Financing Program (liquidity management assistance from sovereign treasuries; issued $560 billion in short-term debt in first six weeks, deposited the proceeds); came close to ceding Treasury quasi- monetary policy power c) rapid decline in Federal Reserve‘s holdings of U.S. Treasury securities to unprecedented post-war levels; stabilized (http://www.frbatlanta.org/econ_rd/macroblog/100708c.jpg) at approximately $480 billion

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2. Stage 4: Rescue: Liquidity/Solvency - Government Tab

(http://www.nytimes.com/interactive/2009/02/04/business/20090205-bailout-totals-graphic.html)

Tracking the $700 Billion Bailout - http://www.nytimes.com/packages/html/national/200904_CREDITCRISIS/recipients.html

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2. Stage 4: Rescue: Liquidity/Solvency Loss Tally: Households

Tally of Losses: Households 10) Up to 12 million projected foreclosures during next 5 years 1) 2006 - 61% share of subprime loans that went to people who could have qualified for loans with 11) 1 in 9 homeowners seriously delinquent on their better terms mortgage

2) 2006-2008 - 24% decline in existing home sales 12) 1 in 4 owners owe more than property value

3) 2006-2008 - 54% decline in new home sales 13) Less than 1% typical rate difference between a 30-year, fixed mortgage and initial rate of a 4) 2006-2008 - 58% decline in new home construction subprime adjustable-rate mortgage

5) Since 2007 - 6.6 million foreclosures initiated 14) Cumulative default rate for subprime borrowers with a similar risk profile more than 3x higher 6) 2008 - over $ trillion drop in residential lending than to borrowers with lower-rate loans from 2007 15) $5,222 typical extra cost paid in first 4 years by 7) 2009 - Average price decline per home of $7,200 subprime borrowers. who got a loan from a mortgage broker, vs. other similar borrowers 8) 2009 - 69+ million homes estimated to have lost property value because of nearby foreclosures (source: Center for Responsible Lending; http://www.responsiblelending.org/mortgage-lending/research- 9) 2009 - $502 billion estimated property value lost analysis/snapshot-of-a-foreclosure-crisis.html) because of nearby foreclosures

U.S. Household Net Worth (1950-2009)

1) Since 1953 - household net worth has grown nearly every quarter (except during dot.com bust of early 2000s) 2) 2006-2007 - set new highs as percent of disposable personal income 3) 4th quarter 2007 - overall household net worth was $57.7 trillion (up 3.4% on a year-over-year basis) 4) 2007 - household net worth declined (first time since 2002), caused by erosion in home equity and stock values 5) 4th quarter 2008 - lost $5.1 trillion (9%), most ever in a single quarter in 57-year history of (source: Federal Reserve recordkeeping by central bank (http://graphics8.nytimes.com/images/2009/03/13/business/13wealth- Board) graf01.jpg)

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2. Stage 4: Rescue: Liquidity/Solvency Loss Tally: Corporations

Estimated Losses (estimates of mark to market losses for subprime MBS - ABX prices, by rating and vintage, applied to outstanding volumes)

1) end of May 2008 - value of the outstanding subprime MBS inventory (based on ABX prices) at about $.59 cents (per dollar); implied total valuation losses around $250 billion, ($119 billion, about 47%, at AAA level)

2) 2008 - only 2 of 6 biggest issuers of asset- backed securities in 2006 still in business: (http://www.bis.org/img/qtrly/qt0806u1.gif) GMAC LLC, Royal Bank of Scotland Group plc; Countrywide Financial Corp., Lehman Brothers Holdings Inc., Bear

Stearns Cos., Washington Mutual Inc. - bankrupt)

3) 2008 U.S. Monetary Policy Forum analysis implied: a) U.S. leveraged institutions accounted for 49% of all identified subprime mortgage exposures (no data on exposures to non- subprime mortgage debt) b) roughly 50% ($250 billion) of $500 billion estimate of credit losses on currently outstanding stock of mortgages would hit U.S. leveraged institutions

(http://research.chicagogsb.edu/igm/events/docs/USMPF-final.pdf, p. 35)

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2. Stage 4: Rescue: Liquidity/Solvency Loss Tally: Banks

Bank Losses

1) residential mortgage credit performance weakened in U.S. and Europe 2) home prices in major advanced economies fell roughly 10% from peaks on average (sharpest declines : 27% in U.S., 21% in UK) 3) delinquency, foreclosure rates rose on both prime and nonprime loans

(http://www.imf.org/external/pubs/ft/gfsr/2009/01/pdf/chap1.pdf, p. 23)

Firms (20) Writedown & Loss Capital Raised Bank Writedowns (December 2008) Wachovia Corporation 96.5 11.0 Citigroup Inc.* 67.2 113.5 Merrill Lynch & Co.* 55.9 29.9 Inability to value securities linked to UBS AG 48.6 31.7 home mortgages (backed by sub-prime, Washington Mutual Inc. 45.6 12.1 Alt-A mortgages); lack of orderly market in HSBC Holdings Plc 33.1 4.9 these securities Bank of America Corp.* 27.4 55.7 National City Corp. 26.2 8.9 JPMorgan Chase & Co.* 20.5 44.7 Subprime Losses (end of 2008)* Lehman Brothers Holdings Inc. 16.2 13.9 1) $732.9 billion in asset writedowns and Morgan Stanley* 15.7 24.6 credit losses at more than 100 of world's Royal Bank of Scotland Group Plc 15.6 50.2 biggest banks and securities firms Wells Fargo & Company* 14.6 41.8 2) $788.9 billion capital raised to cope with Bayerische Landesbank 14.4 8.8 IKB Deutsche Industriebank AG 14.0 11.6 losses Credit Suisse Group AG 13.7 11.7 Deutsche Bank AG 12.7 6.0 *(reflect credit losses or writedowns of ING Groep N.V. 10.2 18.0 mortgage assets that weren't subprime, HBOS Plc 9.5 23.7 charges taken on leveraged-loan Credit Agricole S.A. 9.4 12.2 (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aY3qrwJ0gJ commitments since beginning of 2007) r0)

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2. Stage 4: Rescue: Liquidity/Solvency National Crises

Countries in Crisis

Local events triggered panic among investors, chain reactions across markets and countries, irrespective of fundamentals

Intensity of investor panic during surpassed most expectations; normalcy will return slowly, after global community initiates many forceful measures to reform lending, surveillance and economic stabilizing mechanisms

(http://imfdirect.files.wordpress.com/2010/09/moghadam090910d.jpg)

International Monetary Fund

Suggested “binding code of conduct across nations" to:

1) coordinate how and when they would intercede in troubled firms

2) how to share losses from major financial institutions that operate across borders

3) focus regulatory power on biggest hedge funds, other financial institutions which

pose "systemic risk" and have avoided (http://sg.wsj.net/public/resources/images/NA- publicity and oversight AW319A_IMF_NS_20090305231739.gif)

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Stage 4: Rescue: Liquidity/Solvency ‘Thank You’ Note

November 19, 2010 DEAR Uncle Sam,

My mother told me to send thank-you notes promptly. I‘ve been remiss.

Let me remind you why I‘m writing. Just over two years ago, in September 2008, our country faced an economic meltdown. Fannie Mae and Freddie Mac, the pillars that supported our mortgage system, had been forced into conservatorship. Several of our largest commercial banks were teetering. One of Wall Street‘s giant investment banks had gone bankrupt, and the remaining three were poised to follow. A.I.G., the world‘s most famous insurer, was at death‘s door.

Many of our largest industrial companies, dependent on commercial paper financing that had disappeared, were weeks away from exhausting their cash resources. Indeed, all of corporate America‘s dominoes were lined up, ready to topple at lightning speed. My own company, Berkshire Hathaway, might have been the last to fall, but that distinction provided little solace.

Nor was it just business that was in peril: 300 million Americans were in the domino line as well. Just days before, the jobs, income, 401(k)‘s and money-market funds of these citizens had seemed secure. Then, virtually overnight, everything began to turn into pumpkins and mice. There was no hiding place. A destructive economic force unlike any seen for generations had been unleashed.

Only one counterforce was available, and that was you, Uncle Sam. Yes, you are often clumsy, even inept. But when businesses and people worldwide race to get liquid, you are the only party with the resources to take the other side of the transaction. And when our citizens are losing trust by the hour in institutions they once revered, only you can restore calm.

When the crisis struck, I felt you would understand the role you had to play. But you‘ve never been known for speed, and in a meltdown minutes matter. I worried whether the barrage of shattering surprises would disorient you. You would have to improvise solutions on the run, stretch legal boundaries and avoid slowdowns, like Congressional hearings and studies. You would also need to get turf-conscious departments to work together in mounting your counterattack. The challenge was huge, and many people thought you were not up to it.

Well, Uncle Sam, you delivered. People will second-guess your specific decisions; you can always count on that. But just as there is a fog of war, there is a fog of panic — and, overall, your actions were remarkably effective.

I don‘t know precisely how you orchestrated these. But I did have a pretty good seat as events unfolded, and I would like to commend a few of your troops. In the darkest of days, Ben Bernanke, Hank Paulson, Tim Geithner and Sheila Bair grasped the gravity of the situation and acted with courage and dispatch. And though I never voted for George W. Bush, I give him great credit for leading, even as Congress postured and squabbled. You have been criticized, Uncle Sam, for some of the earlier decisions that got us in this mess — most prominently, for not battling the rot building up in the housing market. But then few of your critics saw matters clearly either. In truth, almost all of the country became possessed by the idea that home prices could never fall significantly.

That was a mass delusion, reinforced by rapidly rising prices that discredited the few skeptics who warned of trouble. Delusions, whether about tulips or Internet stocks, produce bubbles. And when bubbles pop, they can generate waves of trouble that hit shores far from their origin. This bubble was a doozy and its pop was felt around the world.

So, again, Uncle Sam, thanks to you and your aides. Often you are wasteful, and sometimes you are bullying. On occasion, you are downright maddening. But in this extraordinary emergency, you came through — and the world would look far different now if you had not.

Your grateful nephew,

Warren,

(Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company)

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Global Financial Stability: 2007-2009

(http://www.imf.org/external/pubs/ft/wp/2010/wp10145.pdf, p. 16)

1) 2003 to 2006 - easy conditions (high levels of risk appetite) 2) April 2007 - long period of benign financial and macroeconomic conditions had led investors into a prolonged ―search for yield‖ (high levels of risk appetite, overly benign perception of credit risk); market risks - rising levels of leverage, correlations across markets 3) October 2007 - increase in credit risks (decline in U.S. housing prices, deterioration in housing markets); deleveraging intensified, liquidity risks increased (rise in market and liquidity risks) 4) September 2008 - Lehman Brothers collapsed; continued pressure on U.S. housing prices; sharp rise in credit risks 5) October 2008 - deterioration in emerging market risks (originated in mature markets)

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3. People: Who Was Involved

The Government

The Bankers

The Investment Bankers

The Credit Rating Agencies

The Hedge Funds

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3. People: Who Was Involved Government

Phil Angelides - Former California State Treasurer, Chairman of the Financial Crisis Inquiry Commission

(http://online.wsj.com/media/angelides_E_20100319105631.j pg)

Ben S. Bernanke - 14th Chairman of the Federal Reserve Board (2006-)

(http://upload.wikimedia.org/wikipedia/commons/thumb/3/3f/ Ben_Bernanke_official_portrait.jpg/225px- Ben_Bernanke_official_portrait.jpg)

Gordon Brown - Former British Prime Minister and Chancellor of the Exchequer

(http://upload.wikimedia.org/wikipedia/commons/thumb/e/ed/ GordonBrown1234_cropped_.jpg/60px- GordonBrown1234_cropped_.jpg)

George W. Bush - 43rd President of the United States (2000- 2008); public housing initiatives; U.S. home ownership peaked in second quarter of 2004

(http://www.american- presidsents.com/george-w-bush)

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3. People: Who Was Involved Government

William J. Clinton - 42nd President of the United States (1992- 2000); public housing initiatives

(http://www.american- presidsents.com/bill-clinton)

Chris Cox - 28th Chairman of the Securities and Exchange Commission (2005-2009)

(http://www.sec.gov/images/cox140.jpg)

Alistair Darling - Chancellor of the Britain‘s Exchequer 2007- 2010 (most senior minister at Her Majesty‟s Treasury, nation‟s primary finance minister)

(http://i.telegraph.co.uk/telegraph/multimedia/archive/01116/tr easury_1116649c.jpg)

William H. Donaldson - 27th Chairman of the Securities and Exchange Commission (2003-2005); reduced capital requirements for brokerage firms, encouraged leverage

(http://www.sec.gov/images/donaldson140.jpg)

Timothy Geithner - 75th Secretary of the U.S. Treasury (Former 9th President of the Federal Reserve Bank of New York)

(http://www.treasury.gov/about/organizational- structure/PublishingImages/photo-geithner-small.jpg)

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3. People: Who Was Involved Government

Phil Gramm (R-TX) - U.S. Senator (1985-2002) Repealed Glass-Steagall Act (Banking Act of 1933): Gramm- Leach-Bliley Financial Services Modernization Act of 1999

(http://upload.wikimedia.org/wikipedia/commons/thumb/7/7c/ PhilGramm.jpg/200px-PhilGramm.jpg)

Alan Greenspan - 13th Chairman of the Federal Reserve Board (1987-2006)

(http://upload.wikimedia.org/wikipedia/commons/thumb/e/e9/ Alan_Greenspan_color_photo_portrait.jpg/225px- Alan_Greenspan_color_photo_portrait.jpg)

Henry M. (‗Hank‘) Paulson, Jr. - 74th Secretary of the U. S. Treasury (2006-2008)

(http://upload.wikimedia.org/wikipedia/commons/thumb/2/25/ Henry_Paulson_official_Treasury_photo%2C_2006.jpg/225p x-Henry_Paulson_official_Treasury_photo%2C_2006.jpg)

Steven L. Rattner - Appointed head of the Presidential Task Force on the Auto Industry (former partner at Lazard Freres, co- founder of the Quadrangle Group)

(http://graphics8.nytimes.com/images/2010/11/16/business/db pix-people-steve-rattner/dbpix-people-steve-rattner- articleInline.jpg)

Jean-Claude Trichet -President of the European Central Bank

(http://www.ecb.int/ecb/orga/decisions/genc/shared/img/triche t.jpg) «URLs»

3. People: Who Was Involved Companies

Lloyd Blankfein - Chairman & CEO, Goldman Sachs

(http://www2.goldmansachs.com/our- firm/our-people/leadership/bios-photos/lloyd-blankfein.jpg)

Jimmy Cayne - CEO, Bear Stearns for 15 Years

(http://i.huffpost.com/gen/16492/thumbs/s-BEAR-STEARNS- CEO-small.jpg)

Joe J. Cassano - Founding Member(1987), Head of London- based AIG Financial Products (derivatives) Division of American International Group (2002-2008); resigned in February 2008

(http://i.huffpost.com/gen/179541/thumbs/s-JOSEPH- CASSANO-large.jpg)

Ralph Cioffi - Sr. Managing Director, Bear Stearns Asset Management, Inc.; indicted, acquitted

(http://www.bloomberg.com/apps/data?pid=avimage&iid=i6v ZwuIQKh7I)

Kathleen Corbet - President of Standard & Poor's rating agency (subsidiary of McGraw-Hill, 2004-2007); rejected Clayton Holdings data on sub-standard mortgage loans

(http://www.bloomberg.com/apps/data?pid=avimage&iid=ibT V5saoWGp0«URLs» )]

3. People: Who Was Involved Companies

James (‗Jamie‘) Dimon - CEO, JP Morgan Chase; acquired Bear Stearns

(http://www.jpmorganchase.com/corporate/includes/images/J D_130x85.jpg)

David Einhorn - President of Greenlight Capital; shorted Lehman‘s stock early

(http://online.wsj.com/media/einhorn_E_20091020162441.jpg )

Richard S. (Dick) Fuld, Jr. - CEO, Lehman Brothers Holdings LLC

(http://images.businessweek.com/ss/09/01/0108_best_worst/i mage/dick_fuld.jpg)

Fred Goodwin - CEO, Royal Bank of Scotland; led acquisition of ABN Amro, expanding service line into investment banking, presided over biggest corporate loss in UK history

(http://www.independent.co.uk/multimedia/archive/00169/pg- 27-goodwin-pa_169149t.jpg)

Edward M. Gramlich - Professor of Economics at the University of Michigan, Former Member of the Board of Governors of the Federal Reserve; saw housing crisis coming, warned about worsening lending standards

(http://media3.washingtonpost.com/wp- dyn/content/photo/2007/09/05/PH2007090502506.jpg)

«URLs»

3. People: Who Was Involved Companies

Alan C. (‗Ace‘) Greenberg - Chairman, Bear Stearns

(http://www.simonandschuster.com/images/authors/49049002 .jpg

Kerry Killinger - Chairman, CEO of Washington Mutual Bank since 1991); presided over largest bank failure in U.S. history September 25, 2008

(http://images.nymag.com/images/2/daily/2010/04/20100414_ killinger_250x375.jpg)

Kenneth D. (‗Ken‘) Lewis - CEO, President, and Chairman of Bank of America; forced to retire September 30, 2009; replaced by Brian Moynihan January 1, 2010

(http://images.businessweek.com/story/08/370/0111_ken_lewi s.jpg)

Raymond W. McDaniel Jr. - CEO of Moody's Investors Service; rejected Clayton Holdings data on sub-standard loans

(http://graphics8.nytimes.com/images/2010/09/27/business/rat ings/ratings-articleInline.jpg)

Angelo Mozilo - Founder, CEO, Countrywide Financial Corp.; indicted for securities fraud; settled

(http://online.wsj.com/media/Mozilo_art_200v_20080625080«URLs» 811.jpg)

3. People: Who Was Involved Companies

Daniel H. Mudd - President, CEO of Fannie Mae 2004-2009; had overseen company's single-family, multifamily, credit, housing and community development, e-Business, technology, corporate marketing and administrative divisions as chief operating officer from 2000-2004

(http://www.bloomberg.com/apps/data?pid=avimage&iid=iV AZsWWAq_EQ)

Earnest Stanley O‘Neal - CEO of Merrill Lynch; resigned in October 29, 2007 after company reported $8.4 billion loss in third quarter, unauthorized merger approach to Wachovia Bank

(http://www.nasdaq.com/investorrelations/board/art/11.gif)

John A. Paulson - Founder, President of Paulson & Co. Inc., hedge fund; had role in the RMBS portfolio selection process of Goldman Sachs ABACUS 2007-AC1 CDO deal (designed to fail; closed on April 26, 2007); shorted portfolio (entered into credit default swaps,"CDS", with Goldman to buy protection on (http://www.bloomberg.com/apps/data?pid=avimage&iid=inN specific layers of ABACUS 2007-AC1 capital structure); zbmerLfus) Paulson‘s role in selection and protection not disclosed to investors); paid Goldman about $15 million for structuring and marketing ABACUS.

Charles O. Prince, III - Chairman, CEO of Citigroup; resigned November 5, 2007

(http://graphics8.nytimes.com/images/2008/04/01/business/02 prince-75.jpg)

«URLs»

3. People: Who Was Involved Companies

Franklin Raines - Chairman, Chief Executive Officer of the Federal National Mortgage Association (‗Fannie Mae‘) 1999- 2004; eased credit requirements in 1999 on loans purchased from banks and other lenders; resigned amidst investigation of alleged $6.3 billion in accounting irregularities; settled with the (http://si.wsj.net/public/resources/images/OB- Office of Federal Housing Enterprise Oversight (OFHEO) and JL250_1raine_D_20100802181540.jpg) the Securities and Exchange Commission on April 18, 2008

Nouriel Roubini - Professor of Economics at New York University's Stern School of Business, Co-Founder and Chairman of Roubini Global Economics; ‗Dr. Doom‘ - saw it coming

(http://3.bp.blogspot.com/_sJFYo_wbdqw/S7UB6lapkRI/AA AAAAAAAOI/UwOn5tTpHs4/s1600/nouriel_roubini.jpg)

Richard F. Syron - Chairman, CEO of Federal Home Loan Mortgage Corporation (‗Freddie Mac‘); ignored warnings; resigned September 8, 2008

(http://graphics8.nytimes.com/images/blogs/dealbook/syron75 x75.jpg)

Matthew Tannin - Bear Stearns Asset Management, Inc.; indicted, acquitted

(http://si.wsj.net/public/resources/images/P1- AW376_Cassan_D_20100722184129.jpg)

«URLs»

3. People: Who Was Involved Companies

John A. Thain - CEO, Merrill Lynch; engineered sale of Merrill Lynch to Bank of America; resigned as head of a wealth management division of BofA January 22, 2009

(http://img.timeinc.net/time/daily/2009/0901/john_thain_0123 .jpg)

Kennedy (‗Ken‘) Thompson - CEO Wachovia Corp.; had acquired Golden West Financial, parent of World Savings, in October 2006; lost $707 million in the first quarter 2008; forced to resign on June 2, 2008 (http://msnbcmedia4.msn.com/j/ap/9e6a7a2a-b140-4736- 8753-8e8195633eb7.grid-6x2.jpg)

Fabrice Tourre (‗Fabulous Fab‘) - Vice President on structured- product-correlation trading desk of Goldman Sachs; 2007 - created Abacus 2007-AC1 (basket of mortgage-backed securities designed to lose), sold to investors, enabled John

(http://graphics8.nytimes.com/images/2010/11/10/business/db Paulson, hedge fund manager, to bet against housing market, pix-people-fabrice-tourre/dbpix-people-fabrice-tourre- make $1 billion; indicted for securities fraud custom1.jpg)

David Viniar - Executive Vice President, CFO, Goldman Sachs - saw trouble in late 2006; convinced Goldman to short the housing market

(http://www2.goldmansachs.com/our- firm/our-people/leadership/bios-photos/david-viniar2.jpg)

George Richard "Rick" Wagoner, Jr. - Chairman and Chief Executive Officer of General Motors for 8 years; resigned at request of Steven L. Rattner, head of the Presidential Task Force on the Auto Industry; considered to have been most responsible (http://blogs.motortrend.com/files/2009/03/15368102- for GM‘s turnaround (not Presidential Task Force) 623x389.jpg)

William R. White - Chief Economist the Bank for International Settlements; saw it coming

(http://www.bis.org/images/photo_gallery/White_thumb.jpg)

«URLs»

4. Government/Corporate: When, What, Where (Descriptive)

Government Timeline: Liquidity, Solvency

Corporate Events Timeline: 2007-2010

«URLs» 4. When,What, Where Government Timeline (Descriptive)

Sept. 21, 1922 Grain Futures Act Regulated trading in derivatives; prohibited fraud, manipulation on futures contracts on wheat, corn, sorghum, other grains.

July 22, 1932 Federal Home Loan 1) created 5-member Federal Home Loan Bank Board to grant federal charters for Bank Act savings associations, establish regulatory system to promote homeownership; 2) established 12 regional Federal Home Loan Banks with authority to borrow up to $215 million from U.S. Treasury to lend to S&Ls to finance home mortgages; 3) founded Federal Savings and Loan Insurance Corporation to insure S&L deposits.

June 13, 1933 Home Owners Refinanced one of every five mortgages on non-farm urban private residences to prevent foreclosure; Home Owners Loan Corporation extended 15-year loans with Refinancing Act expensive payments to 30-year loans with lower payments; stopped lending in 1935 (held 12% of U.S. outstanding residential mortgage debt); liquidated in 1951.

June 27, 1934 National Housing Act Created Federal Housing Administration (FHA) , backed by mutual mortgage insurance fund; authorized mortgage bankers to buy FHA-insured mortgages in secondary market; authorized insuring of deposits at S&Ls; 1999 -insured record $125 billion in mortgages (1 in 8 homeowners had FHA-insured mortgage)

July 15, 1949 American Housing Expanded federal role in mortgage insurance, issuance and the construction of public Act of 1949 housing

Aug. 12, 1954 Federal National Became mixed-ownership corporation (Treasury, mortgage lenders); required company to: 1) increase liquidity in residential mortgage finance market, 2) promote Mortgage Association access to mortgage credit throughout country, 3) provide assistance to the secondary Charter Act market for residential mortgages.

April 11, 1968 Fair Housing Act Defined housing discrimination as the ―refusal to sell or rent a dwelling to any person because of his race, color, religion or national origin.‖

May 29, 1968 Consumer Credit Truth in Lending Act of 1968 promoted informed use of consumer credit: 1) meaningful disclosure of credit terms, 2) consumer protection against inaccurate and Protection Act unfair credit billing and credit card practices; regulated disclosure, billing, debt collection, credit reporting practices

Aug. 1, 1968 Housing and Urban Split Fannie Mae: 1) Fannie Mae, government-sponsored private enterprise, conducted secondary mortgage market activities as before; became shareholder- Development Act of owned, traded; 2) Government National Mortgage Association (GNMA, Ginnie Mae); 1968 government corporation replaced Fannie Mae as government guarantor of federally insured mortgages; assumed "special assistance", "management" functions of old Fannie Mae, guaranteed FHA, VA mortgages; authorized issue of securities backed by FHA and VA mortgages guaranteed by GNMA..

July 24, 1970 Emergency Home Created Federal Home Loan Mortgage Corp. (Freddie Mac) to stabilize residential mortgage markets, expand secondary market for mortgages, expand opportunities for Finance Act of 1970 home ownership and affordable rental housing (offered first mortgage-backed participation certificate, Mortgage Participation Certificate (PC), first conventional mortgage security, in 1971); authorized Fannie Mae to purchase conventional mortgages; Ginnie Mae first guaranteed pool of mortgage loans.

«URLs» 4. When,What, Where Government Timeline (Descriptive)

Dec. 22, 1974 Real Minimized ―unnecessary costs and difficulties of purchasing housing‖ and provided ―greater and more timely information on the nature and costs of the settlement process Estate Settlement and are protected from unnecessarily high settlement charges caused by certain Procedures Act of abusive practices that have developed...‖ 1974

Dec. 31, 1975 Home Mortgage Required lending institutions to report public mortgage loan data to: 1) determine if financial institutions served housing needs of communities; 2) help public officials to Disclosure Act distribute public-sector funds to attract private investment; 3) identify discriminatory lending patterns.

June 27, 1976 G-7 Formed Canada joined France, Germany, Italy, Japan, United Kingdom, U.S. in informal forum of major industrial economies to discuss, seek agreement on economic issues.

Oct. 12, 1977 Community Required banks to lend in low-income neighborhoods where they took deposits; established affirmative action requirement in federal law that banks provide credit to Reinvestment Act of entire service area (including low and moderate income neighborhoods); required 1977 bank regulators to assess bank performance in meeting requirement; authorized, required bank regulators to use supervisory authority to encourage banks to comply with Act requirements to meet community credit needs.

March 31, 1980 Depository Abolished usury laws on first-lien mortgages (closed mortgage market to low, moderate income borrowers); facilitated the implementation of monetary policy, Institutions provided for the gradual elimination of all limitations on the rates of interest which are Deregulation and payable on deposits and accounts, authorized interest-bearing transaction accounts, Monetary Control other purposes; forced all banks to abide by rules of Federal Reserve; allowed banks to merge; removed power of Federal Reserve Board of Governors under Glass- Act of 1980 Steagall Act and Regulation Q to set interest rates of savings accounts; raised deposit insurance of banks, credit unions from $40,000 to $100,000; allowed credit unions, savings and loans to offer checkable deposits; phased out all savings rate ceilings on consumer accounts over 6-years; deregulated banking industry.

June 16, 1981 Housing Commission President‘s Commission on Housing examined housing finance problems.

Oct. 15, 1982 Garn–St. Germain Alternative Mortgage Transactions Parity Act of 1982: "An Act to revitalize the housing industry by strengthening the financial stability of home mortgage lending Depository institutions and ensuring the availability of home mortgage loans"; deregulated Institutions Act of savings and loan associations, allowed banks to provide adjustable-rate (non- 1982 traditional) mortgage loans, balloon payments, interest-only loans, optional adjustable rates; contributed to S&L crisis of late 1980s.

Feb. 24, 1985 Secondary Mortgage Amended several provisions of Securities Exchange Act of 1934 to attract private sector to participate in secondary mortgage market to increase flow of funds to Market Enhancement housing; designated privately issued "mortgage related securities" as "legal Act investments" for state, federally regulated financial institutions; freed regulated financial institutions to invest in private mortgage-backed securities; greatly expanded total amount of mortgage securities outstanding.

«URLs» When, What, Where Government Timeline (Descriptive)

Oct. 22, 1986 Tax Reform Act of Simplified tax code, broadened tax base, eliminated many tax shelters, other preferences; prohibited interest deduction on consumer loans, allowed interest 1986 deductions on select mortgages (made high-cost mortgage debt cheaper than consumer debt; encouraged ―cash-out refinancing‖ to access home equity); defined Real Estate Mortgage Investment Conduit (REMIC) as new tax classification for CMOs (could qualify as asset sales); greater structuring flexibility; led to growth in issuance of collateralized mortgage obligations (CMOs).

July 11, 1988 Basel I Capital Accord Basel Committee on Banking Supervision (under the aegis of the Bank for International Settlements) adopted: ‗International Convergence of Capital Adopted Measurement and Capital Standards‘. Promoted financial stability and fostered regulatory consistency for banks operating across national borders. Defined mechanisms for measuring credit risks and established minimum capital requirements to support risks: 1) Regulatory Capital - amount of equity capital allocated to cover risks, considering parameters defined by the regulator; 2) Risk Weighting Factors for Assets - exposure of assets to Credit Risks (in and out of the balance sheet) are measured through different established weights, considering chiefly a borrower's profile; 3) Minimum Equity Capital Index to Cover Credit Risks (Basel Ratio or BIS Rate) - quotient between regulatory capital and assets, weighted according to risk (bank capital level equal to or above 8% deemed adequate to cover the Credit Risk); January 1, 1993 - became enforceable.

Aug. 9, 1989 Financial Institution 1) Amended Freddie Mac‘s charter; changed its capitalization, structure of its board Reform, Recovery, of directors; expanded HMDA to require lenders to report key information about each mortgage application (applicant‘s income, race, gender, disposition of the and Enforcement Act application); 2) created Office of Thrift Supervision to regulate thrifts (replaced of 1989 (FIRREA) Federal Home Loan Bank Board); 3) made FDIC responsible for insuring deposits of thrift institutions (abolished Federal Savings & Loan Insurance Corporation).

1990 Nobel Prize in Awarded to Professors Harry Markowitz, Merton Miller, William Sharpe for their work on portfolio theory and asset-pricing models; laid foundation for growth of Economics derivative securities underwriting and trading.

Dec. 19, 1991 Federal Deposit Increased powers, authority of FDIC; recapitalized Bank Insurance Fund, allowed the FDIC to borrow from Treasury; created supervisory, regulatory examination Insurance Corporation standards, new capital requirements for banks, new Truth in Savings provisions; Improvement Act expanded rules against insider activities.

Oct. 28, 1992 Regulations: Promote The Federal Housing Enterprises Financial Safety and Soundness Act of 1992, title XIII of the Housing and Community Development Act of 1992; Affordable Home required Fannie Mae, Freddie Mac to meet specified goals for purchases of Ownership mortgages that financed housing for very-low-, low- and moderate-income families and families living in areas traditionally underserved by mortgage market; created Office of Federal Housing Enterprise Oversight.

May 18, 1994 General Accounting ‗Financial Derivatives: Actions Needed to Protect the Financial System‘: ―The Office Report on sudden failure or abrupt withdrawal from trading of any of these large [15 major U.S.] dealers could cause liquidity problems in the markets and pose risks to the Derivatives others, including federally insured banks and the financial system as a whole.‖ http://archive.gao.gov/t2pbat3/151647.pdf

«URLs» When, What, Where (Descriptive) Government Timeline

Sept. 23, 1994 Home Owners‘ Equity (Riegle Community Development and Regulatory Improvement Act of 1994) Protection Act of 1994 prevented balloon payments on high-priced mortgages, outlawed long-term prepayment penalties, forced lenders to evaluate borrowers' creditworthiness.

Sept. 29, 1994 Riegle-Neal Act Interstate Banking and Branching Efficiency Act of 1994; amended Bank Holding Company Act of 1956, Federal Deposit Insurance Act; permitted adequately capitalized and managed bank holding companies to acquire banks in any state one year after enactment.

November 1994 National Unprecedented public-private partnership to: 1) increase homeownership to Homeownership Strategy record-high level over next 6 years, 2) cut housing production costs, make financing more available, affordable and flexible, 3) target assistance (open (Clinton) home-buying market) to underserved communities.

May 4, 1995 Community Strengthened CRA, further reduced red-lining; reformed CRA examination Reinvestment Act process; made banking institutions' CRA ratings available via web for public review; Comptroller of the Currency revised regulation structure (allowed Amended lenders subject to CRA to claim community development loan for loans to finance environmental cleanup or redevelopment of industrial sites when part of an effort to revitalize the low- and moderate-income community where the site was located); increased bank loans to low, moderate-income families.

Dec. 22, 1995 Private Securities Senate overrode President Clinton's Dec. 19, 1995 veto, to reduce ―frivolous‖ securities lawsuits, help companies to defend themselves against class actions Litigation Reform Act brought under Federal securities laws (‗forward-looking statements‘, pleading, discovery, liability, class representation, awards fees, expenses).

1996 HUD: Affordable Department of Housing and Urban Development stimulated demand for relatively low-priced property; set mortgage financing target for Fannie Mae, Lending Goals Freddie Mac (42% to borrowers with income below median in their area; 50% in 2000, 52% in 2005, 57% in 2008); 12% in "special affordable" loans.

Jan. 1996 Market Risk Amendment Basel Capital Accord amended regulatory capital requirements.

Oct. 11, 1996 Investment Advisers Changed registration criteria (investment advisers managing $25 million or more Supervision in client assets must register with the SEC; those managing less had register, be supervised by proper state regulatory agency). Coordination Act

Dec. 5, 1996 ‗Irrational Exuberance‘ Federal Reserve Chairman Alan Greenspan asked of central bankers: ―...But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions...‖ (Annual Dinner and Francis Boyer Lecture of the American Enterprise Institute for Public Policy Research).

1997 Urban Institute Study of Studied Fannie Mae, Freddie Mac's single-family underwriting, appraisal Fannie Mae, Freddie guidelines: 1) local and regional lenders seemed more willing than Government Sponsored Enterprises to serve creditworthy low- to moderate-income and Mac Guidelines minority applicants; 2) Fannie Mae, Freddie Mac modified automated underwriting systems, accepted loans with characteristics previously rejected.

«URLs» When, What, Where (Descriptive) Government Timeline

Aug. 5, 1997 Taxpayer Relief Act of 1) exempted owner-occupied homes from capital-gains taxes ($500,000, from 1997 (Balanced Budget $125,000); 2) reduced capital gains taxes (to 20%, from 28%, in highest tax brackets, to 10% for people in 15% tax bracket), 3) made excluding capital Act of 1997) gains from rental property easier; 3) encouraged frequent home sales.

Nov. 12, 1999 Gramm-Leach-Bliley Repealed last Glass-Steagall Act of 1933; modified portions of Bank Holding Financial Services Company Act; allowed: 1) affiliations between banks and insurance underwriters; 2) holding company to underwrite, sell insurance and securities, Modernization Act of 1999 conduct commercial and merchant banking, invest in, develop real estate, "complimentary activities"; 3) national banks to underwrite municipal bonds.

Dec. 15, 1999 G20 Inaugural Meeting German and Canadian finance ministers hosted The Group of Twenty Finance Ministers and Central Bank Governors in Berlin, Germany.

2000 Edward Gramlich (FRB) Fed Governor expressed concern about ; recommended examining consumer-finance units of FRB-regulated bank holding companies.

June 14, 2000 Financial Services and British Parliament Act created the Financial Services Authority (FSA) as a Markets Act 2000 regulator for insurance, investment business and banking.

June 17, 2000 President Bush Speech on "...by the year 2010, we must increase minority home owners by at least 5.5 Homeownership million. In order to close the homeownership gap, we've got to set a big goal for America, and focus our attention and resources on that goal" (Atlanta, GA)

July 30, 2002 Sarbanes-Oxley Act Protected investors: improved the accuracy and reliability of corporate disclosures (made in compliance with securities laws and other purposes).

Nov. 2002 Single-Family Record 1.069 million annual rate; fourth consecutive month above 1 million (also a record); lowest mortgage rates in more than three decades.

2003 William White - BIS Chief economist (Bank for International Settlements) criticized securitization business, dangers of risky loans, credibility of rating agencies.

Feb. 2003 Office of Federal Housing Armando Falcon Jr., outgoing director, released: ―Systemic Risk: Fannie Mae, Enterprise Oversight Freddie Mac and the Role of OFHEO‖: focused on supply of derivatives to hedge interest rate risk of growing loan portfolios of government-sponsored enterprises, potential fallout should one fail; fired by President Bush next day.

June 25, 2003 Fed Funds Rate to 1% Federal Reserve Board lowered Fed Funds rate to 1% from May 16, 2000 high of 6%; 30-year fixed mortgage rate fell to 5.28% (46-year low).

April 28, 2004 SEC Revised Net Capital Revised Rule 15c3-1 (1975 rule established Broker-Dealers Net Capital Rule (―Alternative Net Requirements); granted special debt-to-net capital ratio exemption to Goldman, Merrill, Lehman, Bear Stearns, Morgan Stanley; allowed: 1) doubling of Capital Requirements for leverage on balance sheets, 2) removing discounts on assets required to protect Broker-Dealers That Are from defaults (had limited broker dealer debt-to-net capital ratio to 12-to-1); 3) Part of Consolidated larger positions on smaller capital base; 4) ―hybrid capital instruments‖, Supervised Entities‖); subordinated debt, deferred return of taxes to be counted as capital; 5) banks to Allowed Wall Street to hold as capital securities ―for which there is no ready market‖; 6) broker-dealers to value ‗hard-to-value‘ assets and liabilities, assign credit ratings to unrated ‗Police‘ Itself counterparties in derivatives transactions. http://shadowbanking.weebly.com/mark-to-market-leverage.html «URLs»

When, What, Where (Descriptive) Government Timeline

June 26, 2004 G20 - Basel II Accords Basel II: International Convergence of Capital Measurement and Capital Standards: a Revised Framework; Basel Committee on Banking Supervision published details for measuring capital adequacy, minimum standard for banks in member countries. Fundamental objective - stronger risk management practices by banks: 1) minimum capital requirements, 2) supervisory review, 3) market discipline.

Sept. 26, 2005 Greenspan Speech 1995-2005: ―...market value of the stock of owner-occupied homes has risen (American Bankers annually by approximately 9 percent on average, from $8 trillion at the end of 1995 to $18 trillion at the end of June (2005).‖ Association Annual Convention) ―This enormous increase in housing values and mortgage debt has been spurred by the decline in mortgage interest rates, which remain historically low. Indeed, the thirty-year fixed-rate mortgage, currently around 5-3/4 percent, is about 1/2 percentage point below its level of late spring 2004, just before the Federal Open Market Committee (FOMC) embarked on the current cycle of policy tightening. This decline in mortgage rates and other long-term interest rates in the context of a concurrent rise in the federal funds rate is without precedent in recent U.S. experience.‖

―...discretionary extraction of home equity accounts for about four-fifths of the rise in home mortgage debt.‖

―...as of mid-2005, less than 5 percent of borrowers had current LTVs [loan-to- value ratios] exceeding 90 percent [amount of the outstanding mortgage divided by current value of the home]. In large part, this share was small because the recent growth in house prices has rapidly pushed down the effective LTV for many homeowners.‖

―Thus, the vast majority of homeowners have a sizable equity cushion with which to absorb a potential decline in house prices...That said, the situation clearly will require our ongoing scrutiny in the period ahead, lest more adverse trends emerge.‖

July 4, 2006 Comprehensive Version Released by Basel Committee on Banking Supervision (included June 26, 2004 Basel II Framework, parts of 1988 Accord not revised during Basel II process, of Basel II Accords 1996 Amendment to the Capital Accord to Incorporate Market Risks, November 2005 paper on Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework).

Sept. 7, 2006 Roubini - International Nouriel Roubini, Professor of Economics (NYU‘s Stern School of Business), Co- Founder and Chairman of Roubini Global Economics, spoke on U.S. and Global Monetary Fund Seminar Outlook; warned of prospective housing bust, , likely banking crisis, Fannie Mae and Freddie Mac insolvency, oil , severe recession, financial crisis.

Sept. 29, 2006 Credit Rating Agency Opened credit rating industry to more competition, abolished SEC's authority to designate credit-rating agencies as "nationally recognized rating agencies‖ Reform Act of 2006 (NRSROs, started in 1975); granted SEC new authority to inspect credit-rating agencies.

«URLs» When, What, Where Government Timeline (Descriptive)

June 2007 New SEC Rules for SEC promulgated new rules: Oversight of Credit Rating Agencies Registered as Nationally Recognized Statistical Rating Organizations; implemented the Credit Agencies provisions of Credit Rating Agency Reform Act (2006).

Aug. 9, 2007 Liquidity Freeze Liquidity hoarding; interbank market started to freeze, threatened banks‘ access to short-term funds; European Central Bank injected €94.8 billion ($131 billion) into region‘s banking system (biggest in ECB history); made one-day pledge to meet 100 per cent of funding requests from financial institutions. http://graphics.thomsonreuters.com/129/EZ_ECBLEN1209.gif

Oct. 10, 2007 HOPE NOW Initiative Treasury Secretary Paulson announced HOPE NOW: alliance of investors, servicers, mortgage market participants, credit and homeowners‘ counselors to maximize efforts to homeowners in distress to help them stay in their homes.

Dec. 12. 2007 FRB TAF Federal Reserve created Term Auction Facility (TAF) to enable commercial banks to bid anonymously for 28-day loans against broad set of collateral (similar to borrowing from discount window); revived interbank lending.

Dec. 20, 2007 Mortgage Forgiveness Allowed taxpayers to exclude income from discharge of debt on their principal residence; debt reduced through mortgage restructuring, mortgage debt forgiven in Debt Relief Act of 2007 connection with foreclosure, qualifies for relief.

Feb. 13, 2008 Economic Stimulus Act $152 billion program provided tax rebates to low- and middle-income U.S. taxpayers, tax incentives to stimulate business investment, increase in the limits of 2008 imposed on mortgages eligible for purchase by government-sponsored enterprises; intended to boost the economy, avoid recession.

March 1, 2008 ‗Malicious Mortgage‘ March 1- June 18, 2008 - Department of Justice, FBI pursued 144 mortgage fraud cases (406 defendants charged) in Operation Malicious Mortgage.

March 11, 2008 Fed‘s TSLF $200 billion Term Securities Lending Facility allowed investment banks to swap agency, other mortgage-related bonds for Treasury bonds for up to 28 days.

April 8, 2008 IMF Report: Estimates ‗Global Financial Stability Report‘: falling U.S. housing prices, rising residential mortgage delinquencies could reach $565 billion; total losses (all loans, real estate of Losses lending) estimated at $945 billion (4% of $21.21 trillion worldwide credit market).

April 21, 2008- Bank of England Allowed banks, building societies to swap high quality mortgage-backed and other securities for UK Treasury Bills for up to three years to finance illiquid assets on Jan. 30, 2009 Special Liquidity banks' balance sheets (exchange them temporarily for more easily tradable assets); Scheme lent £185 billion; received securities with face value of £287 billion (mortgage- backed securities, residential mortgage covered bonds); repayment due Jan. 2012. Bank of England Financial Stability Report: http://www.bankofengland.co.uk/publications/fsr/index.htm

July 15, 2008 SEC Emergency Order Temporarily prohibited naked short selling in the securities of Fannie Mae, Freddie Mac by primary dealers at commercial and investment banks.

July 30, 2008 Housing and Economic Authorized Federal Housing Administration to guarantee up to $300 billion in new 30-year fixed rate mortgages for subprime borrowers (if lenders wrote-down Recovery Act of 2008 principal loan balances to 90% of current appraisal value); strengthened regulations, injected capital into Fannie Mae and Freddie Mac (authorized states to refinance subprime loans with mortgage revenue bonds); established Federal Housing Finance Agency (FHFA) out of Federal Housing Finance Board (FHFB), Office of Federal Housing Enterprise Oversight (OFHEO); authorized government takeover of Government Sponsored Enterprises (GSEs); established tax credit for «URLs» first-time homebuyers up to $7,500.

When, What, Where (Descriptive) Government Timeline

Sept. 18, 2008 FRB AMLF Federal Reserve Board: ‗Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility‘ lending program: loans to commercial banks to purchase high-quality asset-backed commercial paper from money market funds.

October 2008 Rescue Began Coordinated international bailout

Oct. 3, 2008 Emergency Economic Established $700 billion Troubled Asset Relief Program (TARP), to: 1) provide authority, facilities to restore liquidity and stability to the U.S. financial system; Stabilization Act of 2008 2) ensure that such authority and such facilities: a) protect home values, college funds, retirement accounts, and life savings; b) preserve homeownership and promotes jobs and economic growth; c) maximize overall returns to the taxpayers of the United States; d) provide public accountability for the exercise of such authority. Created Office of the Special Inspector General for the Troubled Asset Relief Program (http://www.sigtarp.gov/) to: 1) supervise and coordinate audits and investigations of the purchase, management and sale of assets under TARP, 2) promote economic stability of those who fund the TARP programs; b) Congress: created: 1) the Office of Financial Stability (OFS) within Treasury to implement the Troubled Asset Relief Program; 2) a Congressional Oversight Panel (COP – http://cop.senate.gov/) to ―review the current state of financial markets and the regulatory system.‖

Oct. 7. 2008 FRB CPFF Commercial Paper Funding Facility provided liquidity backstop to U.S. issuers of commercial paper; special purpose vehicle (SPV) would purchase three-month unsecured and asset-backed commercial paper directly from eligible issuers.

Oct. 8, 2008 British Government Bank Britain's Prime Minister Gordon Brown, (Chancellor of the Exchequer) Alastair Darling partially nationalized UK banking industry: spent up to £50 Bailout billion ($88 billion) in taxpayers' money to secure UK banking system; guaranteed about £250 billion of loans, increased amount Bank of England made available for banks to borrow to at least £200 billion; government had already taken control of Northern Rock Plc, Bradford & Bingley Plc; had arranged for Lloyds TSB Group Plc, U.K.'s biggest provider of checking accounts, to take over Edinburgh- based HBOS Plc, country's biggest mortgage lender.

Oct. 14, 2008 TARP Program U.S. Treasury voluntary : encouraged U.S. financial institutions to build capital to increase financing of U.S. businesses.

Oct. 26, 2008 FRB - Commercial Paper Purchased commercial paper directly (first time in its history); largest buyer by Jan. 2009, owned paper worth $357 billion (22.4% of the market).

Nov. 15, 2008 Financial Markets and the G20 discussed strengthening economic growth, dealing with the financial crisis, laying foundation for reform (to avoid similar crisis in future) World Economy‘ http://georgewbush-whitehouse.archives.gov/news/releases/2008/11/20081115- 1.html

Nov. 21, 2008 FDIC Program Broadened federal safety net; created Temporary Liquidity Guarantee Program to guarantee bank debt, to improve liquidity.

Nov. 25, 2008 FRB Term Asset-Backed Announced $500 billion (raised to $1.25 trillion) loan facility to purchase up to $500 billion in mortgage-backed securities backed by housing-related Securities Loan Facility government-sponsored enterprises to revive market for asset-backed securities: 1) hold mortgage interest rates at near-record lows, 2) slow nationwide decline in home prices, 3) encourage mortgage refinancing.

Dec. 3, 2008 SEC Measures Increased transparency, accountability at credit rating agencies to ensure that firms provided more meaningful ratings and greater disclosure to investors. «URLs» When, What, Where (Descriptive) Government Timeline

Dec. 8, 2008 SIGTARP Senate confirmed Neil M. Barofsky, former federal prosecutor in United States Attorney‘s Office for the Southern District of New York, as Special Inspector General for TARP (Troubled Asset Relief Program); sworn in on Dec. 15.

Jan. 16, 2009 Second Round of TARP a) Senate voted 52-42 to release the second round of TARP funds ($350 billion); b) U.S. Treasury, Federal Reserve, and FDIC announced a package of Funds guarantees, liquidity access, and capital for Bank of America (loss-sharing arrangement with Treasury and FDIC on a $118 billion portfolio of loans, securities, and other assets in exchange for preferred shares; $20 billion from Treasury in TARP funds in exchange for preferred stock); finalized terms of their guarantee agreement with Citigroup; c) $1.5 billion Treasury loan from TARP funds to a special purpose entity created by Chrysler Financial to finance new consumer auto loans.

Jan. 19, 2009 UK Government Asset British Treasury set up wide scale insurance program to protect banks against further losses, guarantee bank assets backed by mortgages and other loans, to Protection Scheme increase the amount of lending available to families and businesses; Bank of (Second Bank Rescue England set up a special fund authorized to buy up to £50 billion ($74 billion) of Plan) high-quality private sector assets; U.K. financial institutions that took deposits, had more than £25 billion ($37 billion) of eligible assets would be considered first (British Treasury had invested $63 billion into three major banks in October 2008: Royal Bank of Scotland, HBOS, Lloyds TSB; had also agreed to backstop bank debt).

Feb. 10, 2009 Treasury‘s Financial Purchase convertible preferred stock in eligible banks; create a Public-Private Investment Fund to acquire troubled loans and other assets from financial Stability Plan institutions; expand the Federal Reserve‘s Term Asset-Backed Securities Loan Facility (TALF); institute new initiatives to stem residential mortgage foreclosures and to support small business. http://www.financialstability.gov/

Feb. 17, 2009 American Recovery and $814 billion to promote (expenditures totaled 5.4% of GDP); largest government intervention in the US economy since the New Deal: 1) tax Reinvestment Act of cuts (estimated at $336 billion); 2) unemployment benefits and food stamps, 2009 states' school and Medicaid budgets (estimated at $296 billion); 3) infrastructure: repaving roads, modernizing electricity grid, launching new high-speed rail services (estimated at $230 billion); created Recovery Accountability and Transparency Board with two goals: 1) provide transparency of Recovery-related funds; 2) prevent and detect fraud, waste, and mismanagement.

First monthly survey of bank lending by top 20 recipients of government U. S. Treasury‘s First investment through the Capital Purchase Program: banks continued to originate, Monthly Survey of Bank refinance, renew loans from the beginning of the program in October through December 2008; President Obama signed into law the American Recovery and Lending Reinvestment Act of 2009 (included variety of spending measures and tax cuts intended to promote economic recovery).

Feb. 18, 2009 White House a) Permitted refinancing of conforming home mortgages owned or guaranteed by Fannie Mae or Freddie Mac that exceeded 80% of value of underlying home; b) Homeowner created $75 billion Homeowner Stability Initiative to modify the terms of eligible Affordability and home loans to reduce monthly loan payments; c) increased Treasury Stability Plan Department‘s preferred stock purchase agreements with Fannie Mae and Freddie Mac to $200 billion; d) increased the limits on the size of Fannie Mae and Freddie Mac's portfolios to $900 billion.

«URLs» When, What, Where (Descriptive) Government Timeline

Feb. 23, 2009 Government Firmly Treasury Department, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Office of Thrift Supervision, Federal Reserve Behind Banking System Board claimed; a) U.S. government stood firmly behind the banking system; b) government would ensure that banks had the capital and liquidity needed to provide the credit necessary to restore economic growth; c) reiterated determination to preserve the stability of systemically important financial institutions.

Steven Rattner Appointed Joined Treasury Department as head of the Presidential Task Force on the Auto Industry, lead adviser to Secretary Timothy F. Geithner on auto industry issues (GM, Chrysler had received $17.4 billion in federal aid in December 2008, submitted reorganization plans).

March 19, 2009 Auto Supplier Support Department of the Treasury program; would provide: 1) up to $5 billion in financing to domestic auto industry; 2) protection for selected suppliers on Program receivables from domestic auto companies; 3) opportunity to access immediate liquidity against those obligations.

March 23, 2009 Public-Private Investment U.S. Treasury, Federal Reserve and FDIC to: 1) combine $500 million from private investment funds with public funds to buy troubled or illiquid real Program estate-related assets (so-called ‗legacy assets‘, potentially valued at $1.2 trillion) from financial institutions, 2) to repair balance sheets and 3) to ensure that credit was available to households and businesses.

April 2009 Financial Stability Board Succeeded the Financial Stability Forum (founded in February 1999 by the G7 Finance Ministers and Central Bank Governors upon recommendation by Hans Tietmeyer, President of the Deutsche Bundesbank); components of a crisis management package for financial institutions: 1) central bank liquidity insurance for viable firms and markets (market maker of last resort); 2) recovery plans and contingent capital; 3) resolution of bank failures; 4) official sector support operations and Capital of Last Resort; 5) preserve core financial services through periods of extreme stress without bailing out equity holders or uninsured wholesale creditors.

May 13, 2009 Commodity Exchange Act Treasury Department proposed amendments to the Commodity Exchange Act and securities laws to enhance government regulation of over-the-counter Amendments (OTC) derivatives markets.

May 17, 2009 Consumer Assistance to Established $3 billion Car Allowance Rebate System, (July 1, 2009-November 1, 2009; ―Cash for Clunkers‖ program) to: 1) provide $3,500 or $4,500 Recycle and Save Act of incentive to purchase or lease a new, more fuel efficient vehicle from a 2009 participating dealer (in trade for an old, less fuel efficient vehicle) or use [ublic transport; 2) accelerate motor fuel savings nationwide. ―Cash for Clunkers‖ Chart - http://awesome.good.is/transparency/web/0908/cashforclunkers/flash.html

May 20, 2009 Helping Families Save Raised FDIC deposit insurance coverage from $100,000 to $250,000 per depositor (until January 1, 2014 return to standard level for all account Their Homes Act of 2009; categories except IRAs, certain other retirement accounts); Fraud Enforcement and FERA improved: 1) enforcement of mortgage fraud, securities and Recovery Act of 2009 commodities fraud, financial institution fraud, other frauds related to Federal assistance and relief programs, 2) recovery of funds lost.

«URLs» When, What, Where (Descriptive) Government Timeline

June 9, 2009 TARP Repayment Treasury Department announced: a) 10 of the largest U.S. financial institutions participating in the Capital Purchase Program met requirements for repayment established by primary federal banking supervisors; b) approved their repayment of $68 billion in government money (TARP); 3) freed them from limits on executive compensation and dividends - American Express, Bank of New York Mellon, the BB&T Corporation, Capital One Financial, JPMorgan Chase, the State Street Corporation, US Bancorp, Morgan Stanley and Northern Trust (each had to raise $1.8 billion) and Goldman Sachs.

June 10, 2009 "Compensation Czar' Kenneth R. Feinberg named compensation official for companies on federal assistance (had helped settle possible lawsuits by families of victims of Sept. 11, 2001 terrorist attacks); discretion to set pay.

July 15, 2009 Financial Crisis Inquiry 22 issues: a) fraud and abuse in financial sector; b) federal and state financial regulators; c) global imbalance of savings, international capital flows; d) Commission (10-Member monetary policy; e) accounting practices; f) tax treatment of financial products Bi-Partisan Panel To and investments; g) capital requirements, regulations on leverage and liquidity; h) credit rating agencies; i) lending practices and securitization; j) affiliations Investigate Crisis) between insured depository institutions, non-banking companies; k) 'too-big- to-fail' concept; l) corporate governance; m) compensation structures; n) compensation changes (employees of financial companies); o) legal, regulatory structure of U.S. housing market; p) derivatives, unregulated financial products and practices; q) short-selling; r) financial institutions‘ use of numerical models; s) legal, regulatory structure of financial institutions; t) legal, regulatory structure of investor and mortgagor protection; u) financial institutions, government-sponsored enterprises; v) institutions‘ due diligence quality.

Aug. 26, 2009 Car Allowance Rebate Department of Transportation reported that Car Allowance Rebate System (ended August 24, 2009) resulted in 690,114 applications for vouchers; dealer System Results transactions requested a total of $2.877 billion in rebates.

Sept. 10, 2009 Congress - ‗Value at Risk‘ Committee on Science and Technology hearing on responsibility of mathematical model for credit crisis.

Nov. 6, 2009 Worker, Homeownership, Expanded, extended first-time homebuyer credit allowed by previous Acts; allowed tax credit of 10% of a home‘s purchase price up to a maximum of and Business Assistance Act $8,000 for qualified first-time home buyers (someone who has not owned a of 2009 principal residence during the three-year period prior to the purchase) buying, or entering into a binding contract to buy a principal residence on or after January 1, 2009 and on or before April 30, 2010; amended in July 2010: ―...on or before April 30, 2010 and close on the home by June 30, 2010.‖

Dec. 9, 2009 TARP Extended Treasury Secretary Tim Geithner extended the $700 billion Troubled Asset Relief Program (enacted October 2008) to October 3, 2010; spending to be limited to newer programs aimed at stopping foreclosures, making loans to small businesses, propping credit markets to make loans more available.

Jan. 12, 2010 Financial Crisis Inquiry Held first hearing; questioned Lloyd Blankfein (Goldman Sachs CEO), Jamie Dimon (JPMorgan Chase CEO), John Mack (Morgan Stanley Chairman), Commission Hearing Brian Moynihan (Bank of America CEO).

«URLs» When, What, Where (Descriptive) Government Timeline

Jan. 27, 2010 Money Market Funds Securities and Exchange Commission adopted new rules to strengthen regulatory requirements governing money market funds, protect investors.

March 13, 2010 Valukas Report on Anton R. Valukas, Chairman of Jenner & Block, appointed by bankruptcy court in New York in 2009 to report on the causes of the Lehman bankruptcy, Lehman released 2,200 page report: bad business judgment; used „Repo 105‟ accounting gimmick (designed in 2001 for European use) to temporarily remove about $40 billion of assets from its balance sheet in final three fiscal quarters to look better (booked transactions as “sales” rather than “financings”; no U.S. law firm sanctioned practice). http://lehmanreport.jenner.com/

April 16, 2010 SEC Filed Suit Against Securities and Exchange Commission v. Goldman, Sachs & Co. and Fabrice Tourre (...In Connection With The Structuring And Marketing of A Synthetic Goldman Sachs CDO) http://www.sec.gov/litigation/litreleases/2010/lr21489.htm

April 23, 2010 Greece - Crisis Prime Minister George Papandreou asked for EU/IMF aid package (45 billion euros or $59 billion) - first rescue of member of 16-nation euro zone, largest international bailout of any country. Greece's 2009 budget deficit - 13.6% of GDP; S&P downgraded Greece's credit rating to junk status on April 27, 2010 (lowest in 16-country eurozone); Moody's cut rating four notches on June 14, 2010 to Ba1 (junk status), over risks to EU/IMF bailout package; May 2, 2010 - 15 EU countries, IMF agreed to rescue Greece in exchange for extra budget cuts of 30 billion euros over 3 years added to austerity measures already agreed to (below); May 9, 2010 - IMF provided 5.5 billion euros immediately; May 18, 2010 - Greece received 14.5 billion euro ($18.67 billion) loan from EU to pay immediate debt (€8.5 billion euros due May 19, 2010); steadied global capital markets; Greece‘s government cut spending, implemented austerity measures to reduce deficit by more than €10 billion ($13.7 billion), raised taxes on fuel, tobacco and alcohol, raised retirement age by 2 years, cut public sector pay, went after tax evaders. Greece Debt Crisis Timeline: http://www.guardian.co.uk/business/2010/may/05/greece-debt-crisis-timeline

May 9, 2010 European Financial Ministers from 16 countries (Economic and Financial Affairs Council of European Union) established $957 billion Sovereign Bailout Fund (rescue Stability Facility package) to safeguard financial stability in Europe.

July 21, 2010 and Improved accountability and transparency in the financial system; ended "too big to fail"; ended bailouts; protected consumers from abusive financial Consumer Protection Act services practices, other purposes; strengthened SEC‟s investor-protection of 2010 (Dodd-Frank efforts: empowered the SEC, for first time, to go to administrative-law judges financial overhaul bill) (part of the agency, rules more favorable to the government than in federal court) to seek financial penalties from anyone whose activities in any way involved securities (hedge-fund magnates, bank CFOs, day-trading retirees); streamlined administrative proceedings: limited defense subpoena rights, no depositions, initial decision within 300 days of a case's filing; heightened focus on mortgage products structured around pre-payable, long-term fixed rate loans

Volcker Rule Prohibited short-term proprietary trading; limited banks to owning 3% of hedge fund or private equity fund (less than 3% of banks‟ tier one capital).

«URLs» When, What, Where (Descriptive) Government Timeline

Sept. 2, 2010 European Union New Preliminary approval to new rules establishing three agencies to monitor banks, insurance companies and trading on markets (starting in 2011); created Financial Watchdog European Systemic Risk Board to watch for asset bubbles and other dangers to Agencies the financial system; formal approval of European government ministers and the European Parliament required.

Sept. 12, 2010 G20 - Basel III Accords Basel Committee on Banking Supervision (central bank governors, heads of regulatory supervision from 27 countries) agreed to strengthen global capital standards, reduce risk-taking by banks: rules to ensure enough reserves to withstand financial shocks without needing taxpayer bailouts; required banks to hold top-quality capital ("core Tier 1" capital - equity or retained earnings) totaling 7% of risk-bearing assets, up from 2% under current rules (4.5% of assets + 2.5% capital conservation buffer" of common equity; below 2.5% = curbs on bonuses, dividends); January 2015 - Tier 1 Capital Rule takes effect. January 2016-January 2019 - capital conservation buffer phased in.

Sept. 15, 2010 European Commission - The European Commission (European Union‟s executive branch) proposed new rules by 2012 to reform use of over-the-counter, privately-traded Rules on Derivatives derivatives (financial instruments traded off-exchange) and speculation in shares (OTC derivatives, credit default swaps and the $615 trillion swap industry, short selling); required approval from EU member states, European parliament. Proposed central clearing rules required: 1) standard OTC derivatives be processed through clearing houses (to reduce systemic risk from counterparty default); 2) OTC contracts be reported to “trade repositories” or data banks, made available to regulators; 3) firms hold more capital against non-cleared contracts; 4) firms disclose to regulators significant net short positions equal to 0.2% of issued share capital of company, announce publicly when net shorts exceed 0.5% threshold; 5) “naked” short selling only allowed in limited circumstances; 6) powers to allow national regulators to restrict short selling in sovereign CDSs during periods of volatile trading

Sept. 16, 2010 Congressional Oversight Conclusion: “...“although the TARP [established on October 3, 2008 as part of the Emergency Economic Stabilization Act of 2008] provided critical Panel's TARP Assessment government support to the financial system when the financial system was in a severe crisis, its effectiveness at pursuing its broader statutory goals has been far more limited.”

Program‟s flaws: 1) haphazard implementation of TARP, 2) public anger at the bailout (limited its effectiveness), 3) encouragement of future moral hazard by banks that will now expect government assistance in times of trouble, 4) failure to alleviate the economy‟s troubles and particularly homeowner distress.

[Emergency Economic Stabilization Act of 2008; established $700 billion Troubled Asset Relief Program (TARP), to: 1) provide authority and facilities that the Secretary of the Treasury can use to restore liquidity and stability to the financial system of the United States, 2) ensure that such authority and such facilities: a) protect home values, college funds, retirement accounts, and life savings; b) preserve homeownership and promotes jobs and economic growth; c) maximize overall returns to the taxpayers of the United States; d) provide public accountability for the exercise of such authority.]

«URLs» When, What, Where (Descriptive) Government Timeline

Sept. 17, 2010 Consumer Financial President Obama nominated Elizabeth Warren (Leo Gottlieb Professor of Law Protection Bureau at Law School, head of Congressional Oversight Panel monitoring TARP) as Assistant to the President and Special Advisor to the Secretary of the Treasury to run Consumer Financial Protection Bureau — federal agency (her idea) to protect consumers from abusive lenders .

Sept. 20, 2010 European Financial Europe‟s sovereign bailout fund, established May 9, 2010, received AAA ratings from Moody‟s, S&P, Fitch (preliminary because no member state had Stability Facility - Highest used facility, has issued no debt); facility‟s debt issuance backed first by Ratings beneficiary member state‟s promise to repay, then by major AAA-rated commitments of Germany, France, Netherlands, other euro zone members.

Oct. 3, 2010 TARP Expired Treasury Department lost authority to make new investments under program.

Oct. 5, 2010 TARP in Retrospect U.S. Treasury Department report claimed that the $700 billion Troubled Asset Relief Program: 1) would cost taxpayers $51 billion, down from initial Congressional Budget office estimates of a loss of $350 billion (only $29 billion if the government sold its stake in A.I.G. for expected profit of $22 billion); 2) expects to lose $29 billion on federal bailouts ($17 billion loss from investments in GM and Chrysler; $46 billion loss from housing programs - mortgage modification program known as the Home Affordable Modification Program); 3) made $8.2 billion profit (18% return on $45 billion bailout of Citigroup ($12 billion still to be paid back); reached an agreement with AIG to unwind the stake; 4) will still have investments in Fannie Mae, Freddie Mac; 5) about $204 billion of the bailout funds (just over half) had been paid back to the Treasury (included nearly 80% of money given to banks - $26.8 billion through interest payments on the investments, sales of warrants received in banks); 6) Treasury gave funds to 66 banks known to be weak (source: Government Accountability Office); 7) government earned $25.2 billion on its investment of $309 billion in banks and insurance companies, an 8.2% return over two years (vs. average 4.1% return on 30-year U.S. Treasury bond,, 0.36%-0.92% on high-yield savings accounts, cumulative returns of 0.5% on money- market funds, 2,8% annually on certificates of deposit); behind the stock market (24%) and gold 66%); 8) earned 14% return on the $10 billion invested in Goldman, Sachs; earned 13% return on the $10 billion of Morgan Stanley (source: Bloomberg).

Nov. 11, 2010 G20 Summit Meeting Met in Seoul,Korea to ratify Basel III Accords of September 12, 2010

Nov. 21, 2010 Ireland Bailed Out European Central Bank, International Monetary Fund arranged rescue package worth up to 90 billion euros to bail out Ireland's banking sector (effectively nationalized by Irish government; owed $139 billion to German banks, $132 billion to British banks at end of June, 2010); will take Ireland's fiscal deficit from planned 11.75% of gross domestic product in 2010 to as high as 32% (10 times higher than 3% allowed under the Maastricht Treaty agreed by the EU when it laid out the foundations of its single currency in 1992). Major Irish austerity moves implemented. http://www.guardian.co.uk/business/datablog/2010/nov/22/ireland-bailout- bank-exposure#zoomed-picture

«URLs» When, What, Where Government Timeline (Descriptive)

Nov. 29, 2010 Congressional Budget CBO reported taxpayer cost of $700 billion TARP program plummeted, since its passage in October 2008, to less than $25 billion (distributed $389 billion);AIG Office: TARP Cost bailout projected to cost taxpayers about $14 billion (far less than $70 billion Dropped originally losses will be more than offset by $22 billion in profits from TARP investments in Citigroup, Bank of America).

Dec. 5, 2010 Federal Reserve 1) December 2007-July 2010 - 21,000 transactions under emergency lending programs and other arrangements in response to the crisis; lent money to banks, Board‘s Record During brokers, businesses and investors to keep the financial system functioning; 2) 2008 Crisis December 2007-October 2008 - opened swap lines with foreign central banks, allowed them to temporarily trade their currencies for dollars to relieve pressures in their financial markets (European Central Bank, Australia, Denmark, England, Japan, Mexico, Norway, South Korea, Sweden and Switzerland participated); 3) March 2008-May 2009 - extended a cumulative total of nearly $9 trillion in short-term loans to 18 financial institutions under a credit program; 4) September 2008 - Citigroup, Merrill Lynch, Morgan Stanley under severe pressure (each tapped the program more than 100 times); Citigroup sought help at least 174 times during one 13-month period; JPMorgan Chase borrowed 7 times from a program designed to make it easier for sound institutions to borrow, received 23 loans under a program designed to stabilize the market for Treasury securities, got 570 loans for purchases of asset- backed commercial paper; Goldman Sachs borrowed from the Fed 52 times, owed $18 billion at one point; Barclay's, British bank, at one point owed nearly $48 billion to the Fed; 5) October-November 2008 - lent $16.1 billion to GE in 12 transactions; 6); October 27, 2008-February 1, 2010 - created the Commercial Paper Funding Facility (CPFF) to provide a liquidity backstop to U.S. issuers of commercial paper; bought more than $225 billion in debt in the first week; commercial paper market impaired well into the latter half of 2009; 7) November 25, 2008 - created the Term Asset-Backed Securities Loan Facility (TALF) to help market participants meet the credit needs of households and small businesses (supported the issuance of asset- backed securities (ABS) collateralized by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration; 8) end of 2008 - had about $1.5 trillion in outstanding credit on its books; 9) some of the biggest names in the mutual fund industry sold assets to Fed-financed buyers during the credit crisis (Fidelity, BlackRock, Merrill, T. Rowe Price, Oppenheimer).

Dec. 6, 2010 Citigroup Stock Sale U.S. Treasury planned to sell last 2.4 billion shares (expected to be priced at $4.35/share); $12 billion profit- single biggest from government bailout (had infused $45 billion in November 2008 to cover potential losses on real estate assets of $301 billion in exchange for 7.7 billion shares, about one-third ownership, plus warrants to buy more stock)

Dec. 15, 2010 Financial Crisis Inquiry 500-page report postponed to end of January 2011.

Commission Report to Republican members of the commission released 13-page report, assigned Congress government housing policies substantial blame for origins of the 2008 financial crisis (major partisan division within 10-member commission).

«URLs» When, What, Where Government Timeline (Descriptive)

Jan. 24, 2011 Legal Bills Taxpayers spent more than $160 million defending Fannie Mae, Freddie Mac mortgage finance companies and their former top executives in civil lawsuits accusing them of fraud: 1) $132 million to defend Fannie Mae, its officials in various securities suits, government investigations of accounting irregularities that occurred years before subprime lending crisis erupted; 2) $24.2 million to law firms defending three of Fannie Mae‟s former CEO, CFO, controller (Franklin D. Raines, Timothy Howard, Leanne Spencer).

Jan. 27, 2011 Financial Crisis Inquiry The Financial Crisis Inquiry Report released 576-page report: 1) crisis was avoidable; 2) homeowners pulled out money from their home equity to pay for college tuition Commission Report and everything else; 3) Wall Street generated easy profits: created risky, opaque investments on borrowed money (magnified losses as system crumbled); 4) shoddy lending standards led to low quality mortgages which were securitized and “lit and spread the flame of contagion and crisis”; 5) credit agencies did not do their work, gave high ratings such that “The mortgage-related securities at the heart of the crisis could not have been marketed and sold without their seal of approval”; 6) regulators did not police and oversee Wall Street.

See P. 189: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States. (New York, NY: Knopf, 576 p.).

Feb. 9, 2011 Federal Reserve 22-page proposal (required by Dodd-Frank Act) outlined initial criteria for identifying financial institutions the collapse of which would seriously threaten the Defined Systemic Risk U.S. economy: 1) whether more than 85% of company‘s assets or revenues in two most recent fiscal years were tied to financial activities; 2) cited 35 big banks, with assets of at least $50 billion, which pose systemic risk (could expand to include large hedge funds, insurers, asset managers, consumer finance companies, nonbanks [with at least $50 billion in consolidated assets, if business is closely intertwined with large traditional banks]); 3) higher capital requirements, deeper regulatory scrutiny (forced break-up if in trouble). Proposal open for public comment through March 30, 2011. Final rules require approval of Federal Stability Oversight Council (responsible for oversight of Dodd-Frank Act policies).

Feb. 10, 2011 Morgan Stanley, Sept. 19, 2008 - $22 billion in outflows from Morgan Stanley‘s prime brokerage unit; email from Amy White (Federal Reserve Bank of New York) to several senior Citigroup on Brink officials of New York Fed (including then-chairman, Timothy F. Geithner): ―Morgan is the ‗deer in the headlights‘ and having significant stress in Europe...It‘s looking like Lehman did a few weeks ago.‖

Nov. 21, 2008 email about Citigroup‘s financial condition from Federal Deposit Insurance Corporation official, Christopher J. Spoth, to F.D.I.C. chairwoman, Sheila C. Bair: ―In short, I will characterize the liquidity and confidence situation as negative and deteriorating such that viability may be threatened without outside support‖ (Citigroup stock at $3.77, down 60% for the week); Nov. 22, 2008 - regulators intervened: Treasury, F.D.I.C., agreed to provide protection against possibility of unusually large losses on an asset pool of $306 billion of loans and securities backed by residential and commercial real estate, other assets;

«URLs» When, What, Where Corporate Timeline (Descriptive)

April 5, 1938 Fannie Mae Created National Mortgage Association of Washington, a wholly-owned subsidiary of the Reconstruction Finance Corporation (RFC), under Title III of the National Housing Act of 1934 from Feb.-Apr. 1938, renamed Federal National Mortgage Association (Fannie Mae; Federal Housing Administration had chartered the National Mortgage Association of Washington to establish a secondary mortgage market (to buy and sell mortgages); primary mortgage lenders (mortgage banks, savings and loan associations, commercial banks) could ‗trade‗ mortgages for cash to make new loans (help relieve the nation‘s housing problems during the Depression, stimulate residential construction industry, provide adequate housing for citizens); authorized to buy mortgages insured by Federal Housing Administration (FHA) private lenders, kept them for its own portfolio or sold them to private investors (made private lenders confident about making FHA-insured mortgages); 1938-1948 - bought 66,947 FHA-insured mortgages; sold 49,048; 1948 - bought first mortgage loan guaranteed by Veterans Administration; September 1, 1968 - Title VIII of the Housing and Urban Development Act of 1968 abolished Mortgage Association of Washington.

May 21, 1970 Fannie Privatized Fannie Mae converted to a government-sponsored private corporation.

July 24, 1970 Federal Home Loan Title III of Emergency Home Finance Act of 1970 created Federal Home Loan Mortgage Corporation (Freddie Mac), as separate corporation under Federal Home Mortgage Corporation Loan Bank Board, to stabilize residential mortgage markets, expand secondary market Act - Freddie Mac for mortgages, expand opportunities for home ownership and affordable rental housing; authorized to buy conventional mortgages from federally insured financial institutions; financed most mortgage purchases by securitization; Aug. 30, 1971 - issued Mortgage Participation Certificates (PC), first conventional mortgage security.

1972 Housing Record Federal subsidies propelled the U.S. housing market to all-time record of almost 2.4 million new units.

Feb. 15, 1972 Secondary Mortgage Fannie Mae bought its first conventional mortgages (not insured by the FHA or Market Began guaranteed by VA); beginning of national secondary market for conventional mortgages.

April 19, Private Label MBS Bank of America National Trust & Savings Association issued first private sector 1977 (non-agency) pass-through backed by conventional single-family mortgages; 1971- 1977 - virtually all mortgage-backed securities guaranteed by GNMA or issued directly by FHLMC.

1981 First Option ARM World Savings Bank offered first adjustable rate mortgages (permitted by California state government in 1979 and to federally chartered S&L institutions since July 1, I979 Federal Home Loan Bank Board ruling); principal loan product, for people with fluctuating incomes, deferred interest due on monthly payments

June 1983 CMOs Federal Home Loan Mortgage Corporation issued first collateralized mortgage obligations (CMOs) in three-tranche offering with guaranteed minimum sinking fund structured to approximate a 100% FHA pre-payment rate of underlying collateral(lead managed by First Boston); level pay whole loans as collateral (guaranteed by FHLMC); $31.1 billion market by end of 1985

«URLs» When, What, Where Corporate Timeline (Descriptive)

March 1985 First Non-Mortgage Salomon Brothers offered $60 million of pass-throughs backed by auto loans, originated, serviced by Marine Midland Bank; pool insured by private insurer; trust established, held ABS Offerings underlying loans; first asset-backed securitization.

Sperry Lease Financial Corporation offered $192.5 million pass-through securities secured by pool of lease receivables originated by Sperry Corporation backed by Letters of Credit from Union Bank of Switzerland; rated AAA

Jan. 1, 1986 LIBOR Fixed British Bankers' Association fixed LIBOR (London InterBank Offered Rate), dominant global benchmark for lowest real-world cost of unsecured funding in London market (cost of unsecured borrowing in money markets = average interest rate charged to 20 banks in London interbank market which borrow unsecured short-term funds from each other; BBA had established standard for interest rate swaps, fixing of BBA interest-settlement rates, in October 1984); 11 am daily - publishes 150 LIBOR rates for 10 currencies, 15 maturities quoted for each, from overnight to 12 months (Thomson Reuters, calculation agent, ‗trims‘, discards highest, lowest quartiles of inputs from calculation to reduce possibility of manipulation); swaps market relied most on 3-month dollar LIBOR; determined monthly payments on about half of ARMs in U.S. (LIBOR plus fixed margin, reset periodically as LIBOR change). LIBOR -http://www.bbalibor.com/

1987 REMIC Real Estate Mortgage Investment Conduit (REMIC) tax vehicle: type of special purpose vehicle (SIV) used for pooling of mortgage loans, issuance of mortgage-backed securities - held commercial, residential mortgages in trust for investors (did not own assets of REMIC., never owned mortgage loans); vehicle of choice for securitization of residential mortgages in U.S.

Jan. 3, 1989 Freddie Mac Converted to class of stock that could be owned and traded by investors.

Oct. 1992 Federal Reserve Analysis of credit-granting decisions: much of difference in credit denial rates across races due to black and Hispanic loan applicants had, on average, less wealth, higher loan-to-value Bank of Boston ratios (smaller down payments), more credit blemishes than whites; minority applicants Study over 50% more likely than whites to be denied a loan; prompted efforts to reform Community Reinvestment Act regulations.

Oct. 1994 RiskMetrics J.P. Morgan released ‗RiskMetrics‘, market risk estimation method used internally to manage risk (data on variances of, covariances across various security and asset classes), allowed software makers to develop software to measure risk (called VaR - ‗Value at Risk‘); became established measure of risk exposure in financial services firms, regulatory agencies - transparency, benchmark of market risks.

Oct. 1997 First Community First Union Capital Markets, Bear Stearns launched first publicly available securitization of Reinvestment Act Community Reinvestment Act loans ($384.6 million of mortgage-backed securities guaranteed by Freddie Mac with implied "AAA" rating); later used derivative products: Loans Securitized synthetic collateralized debt obligations, credit default swaps.

Dec. 1997 JP Morgan‘s J.P. Morgan‘s credit derivatives team introduced Broad Index Secured Trust Offering: BISTRO credit risk of loans totaling $9.7 billion made by Morgan to 307 companies, divided into two tranches totaling $700 million (junior - 375 basis points over Libor, senior - 60 basis points over Libor, safer than sovereign bonds); rated Aaa by three agencies; super-senior tranche = residual, unfunded risk (15 basis points over LIBOR in 2005) insured by AIG against all remaining losses (charged annual premium of fiftieth of 1% of sum insured; earned $1.8 million fee to cover non-existent risk); AIG insured super-senior tranches amounting to $560 billion; Morgan packaged only a few CDOs.

«URLs» When, What, Where Corporate Timeline (Descriptive)

Aug. 1998 ‗Flight to Quality‘ Yield spreads on U.S. Treasuries rose (especially for shortest-term bills) as result of continuing Asian currency and economic crises (started July 1997), Russian ruble crisis; investors sought higher returns.

Sept. 29, 1999 Fannie Mae Lowered Eased credit requirements on loans it would purchase from banks and other Credit Standards: Capital lenders in pilot program involving 24 banks in 15 markets (pressure from Clinton administration); encouraged banks to extend home mortgages to or Lending? individuals whose credit was generally not good enough to qualify for conventional loans; had reduced down payment requirements, expanded home ownership from 1993-1998 : 1) number of mortgages extended to Hispanic applicants jumped by 87.2%; 2) number extended to African- American applicants increased by 71.9%, 3) number to Asian Americans rose by 46.3%; 4) number to non-Hispanic whites increased by 31.2% (source: Harvard University's Joint Center for Housing Studies); 44% of loans Fannie Mae purchased in 1998 were from low and moderate-income borrowers.

2002 Gradient Analytics Questioned profit-and-loss statements at four of nation's top mortgage lenders (Countrywide, Washington Mutual, H&R Block Option One, Novastar); inflated profits, failed to estimate future losses.

Sept. 9, 2002 FTC vs. First Alliance Federal district court approved $60 million settlement on October 2000 Federal Mortgage Company Trade Commission charges: First Alliance violated federal and state laws (deceived up to 28,000 home mortgage borrowers, targeted customers with poor (predatory lending) credit histories, failed to give accurate information about costs of loans).

Dec. 31, 2002 Berkshire Hathaway Annual Report: ―...derivatives are financial weapons of mass destruction...‖ http://www.berkshirehathaway.com/2002ar/2002ar.pdf. p. 13-15

June 30, 2004 Home Ownership Record U.S. homeownership hit an all time high of 69.2% in second quarter of 2004. Minority homeownership set a new record of 51%.

Aug. 6, 2004 Merrill Lynch Economists ―At the very least hosing is overextended, and even the Fed has acknowledged Identified Housing Bubble as much. The next question is what ‗pricks‘ the bubble if in fact there is one and the answer to that boils down to two words: interest rates. While the trend in - Merrill Executives Didn‘t personal income is also a key determinant of housing demand and pricing, our Listen research finds that the impact of mortgage rates, basis point for basis point, is three times as powerful as household earnings growth.‖ http://www.ritholtz.com/blog/2010/11/mer-pondering-how-things-might-have- been-different/

May 2005 GM, Ford Downgrades From investment grade to ―junk‖ grade (high-yield, high-risk status); triggered in credit default swap market.

Oct. 2005 Home Sales - Highs 5-year rally ended with record 1.282 million new homes sold (up 6.6% from 2004); record of 7.072 million resale units (National Association of Realtors).

Jan. 2006- Clayton Holdings Analyzed 911,000 loans, before banks assembled mortgage pools, for compliance: 1) some basic level of credit underwriting guidelines, 2) “client risk June 2007 Analyzed Mortgage Pools tolerances”, 3) state and local laws (roughly 10% of total mortgages securitized for Banks (Due Diligence) for sale by 23 investment or commercial banks: Citigroup, Deutsche Bank, Goldman Sachs, UBS, Merrill Lynch, Bear Stearns, Morgan Stanley); 54% of loans in sample met underwriting guidelines, 28%failed (did not meet standards - 39% of these loans went into mortgage pools sold to investors); only 47% met guidelines by the second quarter of 2007; 77% of Goldman Sachs‟s nearly 112,000 mortgages met guidelines; 58% for Citigroup, 74% for Lehman.

«URLs» When,What, Where Corporate Timeline (Descriptive)

Jan. 23, 2006 Ameriquest Mortgage $325 million settlement ($295 million in consumer redress, $30 million in legal fees) with Federal and state law-enforcement officials of two-year investigation of Company vs. States nation's biggest home lender to people with bad credit (charged with unlawful Attorneys General - mortgage lending practices, deceiving consumers, using high-pressure sales tactics Settlement to meet employee sales quotas, from January 1, 1999-December 31, 2005); Roland E. Arnall, founder and principal shareholder: single largest campaign contributor to President Bush since 2002, nominated to be the ambassador to the Netherlands.

Feb. 2, 2006 Fannie Mae Investigated Paul, Weiss, Rifkind Wharton & Garrison concluded internal investigation of $6.3 billion in accounting irregularities; concluded that ―Fannie Mae senior managers had manipulated accounting in 1998 to trigger millions of dollars in bonuses, part of a pattern that for years misled investors by masking the volatile nature of the mortgage finance company's business.‖

June 30, 2006 Home Prices - Peaked S&P/Case-Shiller National U.S. Home Price Index hit a record high of 189.93 (broadest national measure of home prices).

Dec. 5, 2006 Goldman Sachs Email Dan Sparks, head of GS mortgage department, alerted firm‘s senior management to firms loss of $20 million in mortgage market trading.

Dec. 14, 2006 Goldman Sachs Started CFO David Viniar, senior members of mortgage trading desk, risk department, to Hedge Against Losses discussed volatility, early trading losses in firm‘s mortgage book; decided it was time to put hedging strategies in place to prepare for a housing downturn given; call in Mortgage Market to hedge was collective but one senior executive said: "If it hadn't been for [Mr Viniar], it probably wouldn't have happened."; hedging produced a profit in the third quarter, left Goldman with a net short position against the mortgage market). http://media.mcclatchydc.com/smedia/2009/10/29/12/20091028_Scandal_GOLDM AN.large.prod_affiliate.91.jpg

Dec. 19, 2006 Center for Responsible Consumer advocacy group released report: ―Losing Ground: Foreclosures in the Lending Report - Subprime Market and Their Cost to Homeowners‖ - reviewed millions of subprime mortgages originated from 1998-third quarter of 2006: 1) subprime market Subprime Losses experiencing high foreclosure rates (adjustable rate mortgages with steep built-in Forecast rate and payment increases, prepayment penalties, limited income documentation, no escrow for taxes and insurance), 2) projected that one out of five (19.4%) subprime loans issued during 2005-2006 would fail, 3) predicted millions of Americans would lose their homes and as much as $164 billion due to foreclosures http://www.responsiblelending.org/mortgage-lending/research-analysis/foreclosure- paper-report-2-17.pdf

Jan. 23, 2007 Goldman Sachs Email Fabrice Tourre, creator of ABACUS, sent email about U.S. housing market: ―More and more leverage in the system. The whole building is about to collapse anytime now ... Only potential survivor, the fabulous Fab[rice Tourre] ... standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implication of those monstruosities [sic]!!!‖

Feb. 2007 Defaults First Noticed Subprime mortgage defaults began,

Feb. 8, 2007 HSBC Holdings plc Europe's biggest bank, world's No. 3 bank by market value, set aside $10.56 billion Loan Loss Provisions for loan losses in 2006 (20% more than anticipated) due to company's worsening U.S. mortgage business (had acquired Household International for $15.5 billion in 2003 which held portfolio of loans to borrowers with poor credit ratings or large debt burdens secured with low down payments or limited proof of incomes).

«URLs» When, What, Where Corporate Timeline (Descriptive)

Feb. 27, 2007 Freddie Mac Federal Home Loan Mortgage Corporation announced tougher subprime lending standards to reduce risk of future borrower default; would no longer buy most risky subprime mortgages, mortgage-related securities. http://www.freddiemac.com/news/archives/corporate/2007/20070227_subprimelend ing.html

April 2, 2007 New Century New Century Financial Corporation, leading subprime mortgage lender, filed for Chapter 11 bankruptcy protection.

April 26, 2007 Goldman Sachs Offered Completed offering of ‗ABACUS 2007-AC1‘ ($2 Billion Synthetic CDO Referencing a static RMBS Portfolio Selected by ACA Management, LLC‘); rated ABACUS Aaa by Moody‘s, AAA by S&P; Paulson & Co. paid approximately $15 million for structuring, marketing ABACUS portfolio. http://graphics8.nytimes.com/images/2010/04/17/business/17goldman_g/17goldman _g-popup.jpg

May 3, 2007 UBS Closed Dillon Union Bank of Switzerland shut down Dillon Read Capital Management (started subprime fund in June 2005, lost $123 million on investment of $3-$3.5 billion; first Read Wall Street firm with heavy losses in subprime sector.

May 29, 2007 World Bank Report ‗Global Development Finance‘: Globalization of Corporate Finance in Developing Countries; business cycles similar to developed countries (basis for credit crisis).

June 1, 2007 Credit Downgrades Standard and Poor‘s and Moody‘s Investor Services downgraded over 100 bonds backed by second-lien subprime mortgages.

June 7, 2007 Bear Stearns Suspended Halted redemptions on High-Grade Structured Credit Strategies Enhanced Leverage Fund (started August 2006 with Barclays Bank as sole equity investor in exchange Redemptions for $275 million): $; levered at least 10-to-1; down 23% by April 30, 2007; unable to meet margin calls, little liquidity to de-leverage.

June 22, 2007 Bear Stearns Fund Creditors issued collateral ‗margin‘ call to protect against losses on losing positions in collateralized debt obligations held in Bear Stearns‘s High-Grade Structured Rescue Credit Strategies Fund (JP Morhgan Chase and Citigroup demanded more capital, Merrill Lynch tried to sell $850 million of bonds); Bear Stearns pledged up to $3.2 billion in loans to save Fund (started in 2004, 41 months of about 1%-1.5% /month returns; leveraged 25+-to-1; biggest rescue of hedge fund since Long-Term Capital Management saved in 1998 by $3.6 billion from 14 lenders); Bear‘s stock closed at $143.75 (down more than 4% for week).

July 27, 2007 A.I.G. Collateral Call Goldman Sachs sent $1.8 billion margin call to AIGFP (financial products division); bought $100 million of credit default swap protection on A.I.G.

July 10, 2007 S&P, Moody‘s Put 612 subprime residential mortgage-backed securities ($12 billion in rated bonds) on credit watch; Moody‘s downgraded 399 bonds, put 32 on review.

July 17, 2007 Bear Stearns Asset 1) Bear Stearns High-Grade Structured Credit Fund had lost more than 90% in value (originally $1 billion in investor capital); 2) Bear Stearns High-Grade Management Losses Structured Credit Strategies Enhanced Leveraged Fund lost about 100% in value (originally $600 million).

July 24, 2007 Countrywide Financial Countrywide Financial Corporation warned of ―difficult conditions.‖

July 30, 2007 First Subprime Bank IKB Deutsche Industriebank AG,midsized German bank, could not roll over short- term asset-backed commercial paper for Rhineland Funding conduit it managed Rescue (52% of portfolio exposed to subprime); public and private banks arranged €3.5 billion rescue package. «URLs»

When, What, Where Corporate Timeline (Descriptive)

July 31, 2007 Bear Stearns Failed Filed for Chapter 11 bankruptcy protection for two failed hedge funds of irregular and illiquid securities with no readily ascertainable market values; beginning of crisis; investors lost approximately $1.8 billion.

Aug. 6, 2007 American Home American Home Mortgage Investment Corporation filed for Chapter 11 bankruptcy protection.

Aug. 8, 2007 Liquidity Crunch Asset-backed commercial paper market peaked, collapsed; first sign of potential systemic risk (financial contagion) - spread among non-bank institutions (mortgage lenders, hedge funds, issuers of commercial paper, asset-backed securities, structured products, debt supporting LBOs, takeovers); mortgage- backed CDOs illiquid (no buyers at any price)

Aug. 9, 2007 BNP Paribas Halted France‘s largest bank halted withdrawals from 3 investment funds - couldn't ``fairly'' value holdings; market for asset-backed commercial paper collapsed, Redemptions CDO liquidity disappeared.

Aug. 16, 2007 Fitch Downgrades Downgraded Countrywide Financial Corporation to BBB+, third lowest investment-grade rating; Countrywide borrowed entire $11.5 billion available in its credit lines with other banks.

Aug. 17, 2007 2nd Rescue: Landesbank Announced it could not pay € 17.3 billion debt owed by Ormond Quay investment conduit (freeze in asset-backed commercial paper market; had Sachsen LB (Leipzig) estimated €200 million [$271 million] stake in fixed-income hedge fund run by Synapse Investment Management LLP (London) which had received margin calls from Barclays Plc, faced seizure of collateral); German banks, regulators lent $17.3 billion; acquired on Aug. 27, 2007 by Landesbank Baden- Wuerttemberg (Stuttgart) in fire sale (€ 300 million for bank with core capital of € 1.5 billion).

Sept. 14, 2007 Northern Rock plc Chancellor of the Exchequer authorized Bank of England to provide liquidity support for Northern Rock plc, United Kingdom‘s fifth-largest mortgage lender.

Oct. 11, 2007 Stock Market High Dow Jones Industrial Average traded at an intraday high of 14,198.10.

Oct. 24, 2007 ABACUS Downgraded 83% of residential mortgage-backed securities (RMBS) in Goldman Sachs ABACUS 2007-AC1 portfolio downgraded; 17% on negative watch.

Oct. 30, 2007 Merrill Lynch Fired Directors fired E. Stanley O‘Neal after $8.4 billion write-down, unauthorized merger approach to Wachovia (Merrill‘s stock had traded around $95/share in Chairman, CEO spring 2007, as low as $59/share in October 2007).

Nov. 3, 2007 Citigroup CEO Resigned Charles O. Prince III resigned; had reported fourth straight quarterly loss ($2.8 billion in October 2007); losses over prior 12 months totaled $20.2 billion; long- term debt of $427.1 billion (over 5 times annual net revenue).

Nov. 14, 2007 Merrill Lynch - CEO Named John A. Thain chairman, CEO (former head of NYSE Euronext, former co-president of Goldman Sachs).

Dec. 10, 2007 Citigroup - New CEO Citigroup named Vikram Pandit as CEO.

Jan. 8, 2008 Bear Stearns - CEO Out James Cayne resigned, after 39 years with the firm (final 14 as CEO).

Jan. 11, 2008 BofA Acquisition Bank of America announced that it would purchase Countrywide Financial in an all-stock transaction worth approximately $4 billion.

Jan. 18, 2008 Ambac Financial Group Fitch downgraded financial strength of monoline insurer to AA, Credit Watch Negative; S&P downgrade AAA rating to CreditWatch Negative. «URLs»

When, What, Where Corporate Timeline (Descriptive)

Jan. 29, 2008 ABACUS Downgraded 99% of the residential mortgage-backed securities (RMBS) in Goldman Sachs ABACUS 2007-AC1 portfolio downgraded. ―ABACUS Meltdown‖: http://online.wsj.com/article/SB100014240527487037575045751945212576072 84.html

Feb. 17, 2008 Northern Rock State ownership by British Treasury (first bank in 150 years with bank run after approaching Bank of England fo loan to replace money market funding; Receivership February 21, 2008 - British Parliament enacted The Banking (Special Provisions) Act 2008 (nationalized banks under emergency circumstances).

March 16, 2008 Bear Stearns Sold Bear Stearns suffered ―sudden liquidity squeeze related to its large exposure to devalued mortgage-backed securities‖; sold, to minimize counterparty credit risk, to JP Morgan for $236 million ($2.00/share, down from more than $150 per share in May 2007); adjusted to $10/share ($1.1 billion) on March 24, 2008.

Apr. 8, 2008 David Einhorn Speech ―Private Profits and Socialized Risk‖ - at Grant's Interest Rate Observer Spring Investment Conference; discussed SEC‘s actions in 2004: let Wall Street police itself , paved way for privatized gains and socialized losses. http://mrmortgage.typepad.com/blog/files/david_einhorn_private_profits_sociali zed_risk_40808.pdf

May 20, 2008 Moody's Rating Errors Financial Times: ―Moody's error gave top ratings to debt products‖ - Moody's awarded incorrect AAA ratings to billions of dollars of debt products due to coding error in its computer models (knew early in 2007 that AAA ratings should have been up to four notches lower; dropped in January 2008).

May 21, 2008 David Einhorn Shorted David Einhorn (Greenlight Capital) spoke at Ira Sohn Investment Research Conference about Lehman Brothers‘s ‗accounting ingenuity‖ (use of fair value Lehman Stock accounting), its overvaluation, its large and highly levered portfolio, his shorting of Lehman‘s stock: ―My hope is that Mr. Cox and Mr. Bernanke and Mr. Paulson will pay heed to the risks to the financial system that Lehman is creating and that they will guide Lehman toward a recapitalization and recognition of its losses – hopefully before federal taxpayer assistance is required. For the last several weeks, Lehman has been complaining about short-sellers. Academic research and our experience indicate that when management teams do that, it is a sign that management is attempting to distract investors from serious problems. For the capital markets to function, companies need to provide investors with accurate information rather than whatever numbers add up to a smooth return. If there is no penalty for misbehavior – and, in fact, such behavior is rewarded with flattering stories in the mainstream press about how to handle a crisis – we will all bear the negative consequences over time. At a minimum, what message does this send to some of Lehman‘s competitors that probably didn‘t have problems quite as acute as Lehman, but who took sizable write- downs, and diluted their shareholders with significant equity raises?‖

June 9, 2008 Lehman Loss First-ever loss ( $2.8 billion for the quarter) since going public in 1994

June 13, 2008 Lehman Executives Removed Joseph M. Gregory, No. 2 and demoted Erin Callan, chief financial officer and the highest-ranking woman on Wall Street.

June 19, 2008 Bear Stearns Indictments Department of Justice, FBI arrested Ralph Cioffi, Senior Managing Director of Bear Stearns Asset Management Inc., Matthew Tannin; indicted for securities fraud (misleading clients as funds failed in, cost clients $1.6 billion); part of Justice Department sweep dubbed "Operation Malicious Mortgage"

July 2008 Record Homes for Sale All time record high of 4.58 million existing homes for sale nationwide.

«URLs» When, What, Where Corporate Timeline (Descriptive)

July 1, 2008 Countrywide Acquired Bank of America completed acquisition of Countrywide Financial Corp. for $2.5 billion; became the nation's biggest home lender.

July 11, 2008 IndyMac, F.S.B. Closed by Office of Thrift Supervision. FDIC transferred insured deposits, most assets to IndyMac Federal Bank, FSB.

Sept. 7, 2008 Fannie Mae, Freddie Federal Housing Finance Agency placed Fannie Mae, Freddie Mac in conservatorship; took control of operations and assets, assumed powers of Mac Taken Over shareholders, directors, officers; suspended stockholders‘ voting rights, replaced management; Federal Reserve Board, FDIC, Office of the Comptroller of the Currency, Office of Thrift Supervision prepared capital-restoration plan.

Sept. 15, 2008 Lehman Filed for Lehman Brothers Holdings Incorporated filed for Chapter 11 bankruptcy protection; largest bankruptcy in history; subprime market liquidity disappeared. Bankruptcy http://www.nytimes.com/imagepages/2008/09/15/business/15lehman.graf.ready.html

Bank of America agreed to acquire Merrill Lynch in deal valued at as much as $50 billion (more than $29 a share, 70% premium from Merrill's closing price on BofA Acquired Merrill September 12, 2008 of $17.05). Lynch http://www.theatlantic.com/magazine/archive/2009/09/the-final-days-of-merrill- lynch/7621/

Sept. 15, 2008 AIG Downgraded Fitch, Moody‘s, S&P lowered credit rating (cited 91% drop in stock price, widening yields on its debt, difficult capital market conditions); forced to put up $14.5 billion in collateral; could not raise cash quickly enough.

Sept. 16, 2008 American International U.S. government seized AIG, one of the world's biggest insurers; Federal Reserve Board authorized the Federal Reserve Bank of New York to lend up to $85 billion to Group Inc. (AIG) rescue company; government took 79.9% equity stake in form of warrants (equity Seized participation notes); company had: conducted ―ratings arbitrage‖ (capitalized on its AAA rating to market securities, collect ‗risk‘free‘ fees); 2) sold unregulated credit- default swaps (guarantee against companies‘ defaulting on debt) without hedging (no reserves for loan loss, never expected housing decline); made bank balance sheets ―look‖ safer (illusory ―regulatory capital‖); operated with excessive leverage; 3) charged higher fees for ―collateral triggers‖ provision it had considered meaningless (never expected have to put up collateral in response to ―events‖ such as ratings downgrade for AIG or cds); 4) peak ―notional value‖ of $450 billion (amount owed if all obligations paid); 5) sold 2a-7 puts (allowed money market funds to buy risky bonds instead of safe commercial paper - could ‗put‘ bonds to AIG if they failed); 6) brokerage-like securities lending program in exchange for cash to buy subprime mortgage-backed securities); 7) default meant huge uninsured losses for banks, huge liquidity losses, huge solvency issues, huge government intervention with taxpayers‘ money); Robert Willumstad, CEO, forced to resigned. http://cdn2.creditwritedowns.com/wp- content/uploads/2010/01/chartofthedayaigbailout_thumb.gif A.I.G. Timeline - http://www.ny.frb.org/aboutthefed/aig/timeline.html Reserve Primary Fund $64.8 billion money market mutual fund announced significant losses on $785 ‗broke the buck‘ million holdings of Lehman Brothers commercial paper; started 3-day run on money markets (about $172 billion of $3.45 trillion redeemed); fund‘s share price fell below $1 (never before for public fund); government offered deposit insurance.

Sept. 21, 2008 Goldman Sachs, Federal Reserve Board approved bank holding company applications of Goldman Morgan Stanley Sachs, Morgan Stanley (Goldman Sachs became 4th largest bank holding company).

«URLs» When, What, Where Corporate Timeline (Descriptive)

Sept. 23, 2008 Warren Buffett (Berkshire) Agreed to invest $5 billion in Goldman Sachs Group (preferred stock with 10% dividend yield, warrants to buy up to $5 billion of common stock at $115/share).

Sept. 25, 2008 Washington Mutual Bank 10 days after depositors withdrew $16.7 billion; banking operations acquired by JPMorgan Chase ($307 billion in assets, $188 billion of deposits, 2, 239 Seized by Office of Thrift branches); largest bank failure in history of FDIC (received $1.9 billion from Supervision JPMorgan Chase, no losses incurred by Deposit Insurance Fund (shareholders lost about $41 billion).

Sept. 29, 2008 Bradford & Bingley plc British government nationalized second bank (£40 billion in mortgages, mostly in buy-to-let and self certification ―liar‖ loans); £21 billion deposit book, 197 Nationalized branches, 140 agency outlets sold to Abbey National division of Banco Santander for over £600 million (about $1.1 billion).

Sept. 29, 2008 Belgian-Dutch Fortis Governments of Holland, Belgium and Luxembourg nationalized Fortis with a N.V./S.A. Nationalized €16.8 billion (£13 billion) bailout "aimed at maintaining the durable solvency" of the banking and insurance group; 20th largest business in the world by revenue in 2007; first major banking casualty in the Euro zone.

Oct. 8, 2008 AIG Additional Funds Federal Reserve Board provided additional $37.8 billion (AIG had already drawn down $61 billion of $85 billion bridge loan made on Sept. 8); FRB accepted up to $37.8 billion of fixed-income securities from regulated life insurance subsidiaries; cash collateral used to improve liquidity of AIG‘s securities lending business.

Oct. 12, 2008 Wachovia Acquired Federal Reserve Board approved Wells Fargo acquisition of Wachovia.

Oct. 13, 2008 British Rescue of Royal British Treasury: 1) infused £37 billion ($64 billion, €47 billion) into Royal Bank of Scotland Group Plc (had been world's 5th biggest bank by market value; had Bank of Scotland Group led near £50 billion takeover of ABN Amro in October 2007), HBOS Plc (UK‘s plc, HBOS plc, Lloyds largest mortgage lender), Lloyds TSB plc to: stabilize banks‘ positions (Tier 1 TSB plc capital ratio in excess of 9%), support long term strength of the economy, stability in financial system, protect savers, depositors, businesses, borrowers, interests of taxpayers; 2) RBS received £20 billion, 68% owned by government (74%, £25.5 billion added in November 2009); world‘s biggest bailout of a single bank (£53.5 billion); 3) HBOS acquired by Lloyds TSB on January 19, 2009 (‗competition law‘ waived; 43.4% owned by taxpayers; government invested £39.2 billion in both, £50 billion with tax concessions). ―Banking Crisis: Dealing with the failure of the UK Banks‖ - Mitsubishi UFJ Financial http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/416/416 04.htm Group Infusion Japan's largest financial group, world's second largest bank holding company made $9 billion equity investment in Morgan Stanley, gave MUFG 21% ownership interest in Morgan Stanley on a fully diluted basis.

Nov. 10, 2008 AIG Restructured Treasury purchased $40 billion of AIG preferred shares (under TARP program), reduced FRB‘s loan to AIG from $85 billion to $60 billion.

Nov. 13, 2008 House Committee John Paulson, George Soros, Philip Falcone (Harbinger Capital Partners, Ken Griffin (Citadel Investment Group), James Simons (Renaissance Technologies), Hearing: ―Hedge Funds highest-paid fund managers in 2007, appeared at House Committee on Oversight and the Financial Market‖ and Government Reform hearing: systemic risks to financial markets posed by hedge funds, proposals for regulatory, tax reforms.

«URLs» When, What, Where Corporate Timeline (Descriptive)

Nov. 18, 2008 Auto Executives Executives of Ford, General Motors, and Chrysler testified before Congress; requested access to the TARP for federal loans.

Nov. 23, 2008 Citigroup ‗Loss Sharing‘ U.S. Treasury Department, Federal Reserve Board, FDIC provide $45 billion in guarantees, liquidity access, and capital to cover potential losses on real estate Program assets of $301 billion; Citigroup‘s stock price down 87.2% in 2008 www.citigroup.com/citi/press/2009/090116b.pdf

Nov. 26, 2008 BofA Acquisition Federal Reserve Board approved Bank of America Corporation acquisition of Merrill Lynch and Company.

Dec. 11, 2008 U.S. Economy Peaked Dating Committee (National Bureau of Economic Research) announced peak in U.S. economic activity occurred in December 2007 and that the economy had since been in a recession.

Dec. 15, 2008 PNC Financial Approved Federal Reserve Board approved PNC Financial Services Group Inc. acquisition of National City Corporation; formed fifth largest U.S. bank.

Dec. 19, 2008 GM, Chrysler Loans U.S. Treasury Department authorized loans of up to $13.4 billion for General Motors and $4.0 billion for Chrysler from the TARP.

Dec. 22, 2008 CIT Group Approved Federal Reserve Board approved the bank holding company application of CIT Group Inc. ($81 billion financing company).

Dec. 24, 2008 Bank Holding Company Federal Reserve Board approved bank holding company applications of GMAC LLC ($211 billion company), IB Finance Holding Company, LLC, on conversion Approvals of GMAC Bank to a commercial bank ($33 billion Utah industrial loan company, direct subsidiary of IBFHC, indirect subsidiary of GMAC LLC); General Motors agreed to reduce its ownership interest in GMAC to less than 10%.

Dec. 29, 2008 General Motors U.S. Treasury Department announced it would purchase $5 billion in equity from Assistance GMAC; agreed to lend up to $1 billion to General Motors "so that GM could participate in a rights offering at GMAC in support of GMAC's reorganization as a bank holding company."

Jan. 1, 2009 Bank of America - 'Deal Bank of America completed acquisition of Merrill Lynch (valued at $50 billion at September 15, 2008 announcement, worth $19.36 billion at closing) - financial from Hell' instability; impaired strategic position; organizational weakness; damaged reputation; or violation of ethical norms and laws. Wachovia Acquired Wells Fargo completed acquisition of Wacovia Corporation

Jan. 22, 2009 Bank of America Fired John A. Thain, head of Global Banking and Global Wealth and Investment Management, resigned from Bank of America after reports he authorized bonus Thain payments between $3-4 billion to Merrill Lynch employees in December 2007, his final days as CEO, while Merrill suffered huge losses just before Bank of America acquired company on January 1, 2009; subsequently- additional $20 billion in Treasury support; $118 billion of government backstops; $15 billion loss at Merrill after repeated assurances of solid due diligence; 78% decline in BofA stock price since September 2008; lawsuits over surprise announcement of Merrill Lynch loss.

Jan. 28, 2009 Credit Unions National Credit Union Administration: 1) guaranteed uninsured shares at all corporate credit unions through February 2009, 2) formed voluntary guarantee Guaranteed program for uninsured shares through December 2010.

«URLs» When, What, Where Corporate Timeline (Descriptive)

Dec. 31, 2008 Housing Affordability - Housing Affordability Index Composite (National Association of Realtors) hit an all-time high of 158.8 (family earning median income had 158.8% of the income All-Time High needed to qualify for a mortgage on a median-priced home); rose to 184.2 by October 2010. http://economix.blogs.nytimes.com/2009/01/30/housing-affordability-at-record- high/

Feb. 26, 2009 Problem Banks 1) FDIC announced the number of "problem banks" increased: 171 institutions with $116 billion of assets at end of the third quarter of 2008 to 252 institutions Increased; Fannie Mae with $159 billion in assets at the end of fourth quarter of 2008; announced 25 Loss bank failures and five assistance transactions in 2008 (largest annual number since 1993); 2) Fannie Mae reported a loss of $25.2 billion in the fourth quarter of 2008, loss of $58.7 billion for year.

Feb. 26, 2009 Royal Bank of Scotland - Net loss of £24.1 billion ($34.4 billion) for 2008 fiscal year (attributed mainly to its purchase of the Dutch bank ABN Amro); had reported profit of £7.3 billion in Worst Loss in UK 2007; smaller loss than analysts had expected (up to £28 billion), largest annual History loss in British corporate history.

Feb. 27, 2009 Citigroup Preferred Stock Treasury Department announced willingness to convert up to $25 billion of Citigroup preferred stock, issued under the Capital Purchase Program, into common equity (contingent on the willingness of private investors to convert a similar amount of preferred shares into common equity).

March 2, 2009 American International Treasury Department and Federal Reserve Board announced a restructuring of government's assistance to American International Group: a) as much as $30 Group Assistance billion of additional capital from the Troubled Asset Relief Program (TARP), b) Restructured exchange existing $40 billion cumulative preferred shares in AIG for new preferred shares with revised terms that more closely resembled common equity, c) reduce AIG's revolving credit facility with the Federal Reserve Bank of New York from $60 billion to no less than $25 billion, modify terms; d) in exchange, the Federal Reserve would receive preferred interests in two special purpose vehicles created to hold the outstanding common stock of two subsidiaries of AIG.

March 6, 2009 Stock Market Low Dow Jones Industrial Average traded to an intraday low of 6,469.95.

March 19, 2009 ―CDO Market Anna Katherine Bernett-Hart submitted her thesis to the Department of Economics (Harvard): ―The Story of the CDO Market Meltdown: An Empirical Meltdown‖ Analysis‖; acknowledged in ―The Big Short‖ (Michael Lewis) http://www.hks.harvard.edu/m-rcbg/students/dunlop/2009-CDOmeltdown.pdf

March 29, 2009 GM CEO Resigned Rick Wagoner, Chairman, CEO of GM for 8 years, resigned at request of Steve Rattner, head of Presidential Task Force on the Auto Industry - condition for receiving more government aid;.

April 2, 2009 Accounting for Troubled Financial Accounting Standards Board approved new guidance on determining fair value of assets for which there was no active market (eased accounting of Assets troubled assets held by banks, financial institutions).

April 29, 2009 Bank of America Shareholders stripped Ken Lewis of title of Chairman of Bank of America (American Banker‘s Banker of the Year in 2008); held him accountable for Bank Chairman Stripped of America‘s need to accept two government bailouts ($45 billion).

«URLs» When, What, Where Corporate Timeline (Descriptive)

Nov. 17, 2008 TARP Funding Sought Lincoln National, Hartford Financial Services Group, Genworth Financial.

May 7, 2009 Bank Stress Test Supervisory Capital Assessment Program ("stress test") of 19 largest U.S. bank holding companies: a) 19 firms could lose $600 billion during 2009 and 2010 under Results adverse economic conditions; b) 9 had adequate capital (in excess of 6% of total assets, 4% of common equity capital); 10 needed $185 billion additional capital.

May 8, 2009 Fannie Mae Losses Fannie Mae reported a loss of $23.2 billion for the first quarter of 2009.

May 12, 2009 Freddie Mac Losses Reported first quarter loss of $9.9 billion, net worth deficit of $6.0 billion.

May 27, 2009 FDIC: Problem Banks ―Problem banks" increased from 252 insured institutions ($159 billion in assets) at end of 4th quarter 2008 to 305 institutions ($220 billion of assets) at end of 1st Increased quarter 2009 (and 21 bank failures, largest number since 1st quarter 1992).

June 1, 2009 General Motors Chapter General Motors Corporation, three domestic subsidiaries filed for protection under Chapter 11 of the U.S. Bankruptcy Code (part of restructuring agreement with U.S. 11 Treasury and governments of Canada and Ontario); $88 billion of losses since 2004.

June 30, 2009 New Risk Rules Office of Comptroller of the Currency required all commercial banks with total assets greater than $10 billion to report fair value of collateral held against various classifications of counterparty exposure.

June 30, 2009 NBER: Recession National Bureau of Economic Research declared (on September 20, 2010) end of recession which began in December 2007 (18 months, record four straight quarters Ended of declines in GDP - longest recession since World War II; unemployed rose to more than 9% nationally, from 7.7 million in December 2007 to 14.7 million in June 2009 (5% in December 2007 to 9.5% in June 2009).

July 10, 2009 General Motors 40 days after entering bankruptcy: streamlined bureaucratic structure (shed 4,000 white-color jobs); closed dozen plants/factories; transferred liabilities to ‗old‘ GM Emerged from (government-controlled company to be sold to cover part of the company‘s debts); Bankruptcy 88,000 workers in U.S., 235,000 worldwide; no debts, $43 billion in loans from the government. Privately-held GM owned: 60.8% by federal government, 17.5% by the United Auto Workers Union Benefit Trust (VEBA), 11.7% by Export Development Canada, 9.8% by old company's bondholders (more than $28 billion owed to bond holders exchanged for stock. GM's old shareholders got nothing). 11 Milestones Since Bankruptcy - http://www.time.com/time/specials/packages/completelist/0,29569,1994098,00.html New GM Chairman Ed Whitacre, retired CEO of ATT, took over; one of only 3 non-executives to lead the GM board since 1937; replaced Fritz Henderson as CEO on December 1, 2009.

Nov. 10, 2009 Bear Stearns Acquittals Jury acquitted Ralph Cioffi, Matthew Tannin, former Bear Stearns hedge fund managers, of fraud; believed investors understood hedge fund risks.

Feb. 4, 2010 Bank of America SEC settled claims that bank misled shareholders about bonuses, losses at Merrill Lynch; bank agreed to pay $150 million, strengthen corporate governance; NY Settled with SEC; CEO Attorney General Cuomo filed civil fraud lawsuit against Ken Lewis, former CEO, Sued Joe Price, former CFO; claimed defendants misled shareholders, federal government over acquisition before shareholders voted on firm‟s pending takeover, used losses to extract more bailout funds from U.S. regulators.

«URLs» When, What, Corporate Timeline Where (Descriptive)

April 16, 2010 Goldman Sachs Charged SEC Charged Goldman Sachs With Fraud in Structuring and Marketing of CDO Tied to Subprime Mortgages - charged Goldman, Sachs & Co. and one of its vice with Fraud presidents for defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter...that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.

SEC alleged that marketing materials did not disclose to investors that Paulson & Co. (hedge fund) was poised to benefit if the RMBS defaulted and played a significant role in selecting which RMBS should make up the portfolio. Investors in the liabilities of ABACUS are alleged to have lost more than $1 billion. http://media.mcclatchydc.com/smedia/2010/04/16/18/20100416_SEC_GOLDMA N.large.prod_affiliate.91.jpg

SEC's complaint charged Goldman Sachs and (Fabrice) Tourre (Goldman Sachs employee who structured deal) with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5. The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest, and financial penalties. Securities and Exchange Commission v. Goldman Sachs, 10-cv-03229, U.S. District Court, Southern District of New York

June 24, 2010 Morgan Stanley Settled Agreed to pay $102 million fine to state of Massachusetts for role in subprime mortgage lending.

May 26, 2010 Mortgage Bankers Released ―"Anatomy of Risk Management Practices in the Mortgage Industry": poor data, incomplete performance metrics, short-term focus, unrealistic optimism Report among senior business managers contributed to collapse in US housing and mortgage markets. http://www.housingamerica.org/Publications/AnatomyofRiskManagementPractice sintheMortgageIndustry:LessonsfortheFuture.htm

July 2010 New Home Sales - Sales of new homes in the US fell to record low - seasonally-adjusted annual rate of 276,000 (down 32.4% in the past year); single family sales at lowest level since Record Low May of 1995; 12.5 months supply of existing homes.

July 15, 2010 Goldman Sachs Settled Agreed to pay $550 million to settle April 2010 SEC lawsuit that it misled investors in sale of subprime mortgage product in 2007.

July 30, 2010 Citigroup Settled Paid $75 million to settle federal claims it failed to disclose deteriorating holdings of subprime mortgages in 2007; required federal bailout in 2008.

Aug. 13, 2010 GM Profit, CEO Leaving Announced $1.3 billion turnaround quarter, biggest profit in six years; Ed Whitacre to be replaced by Daniel F. Akerson on Sept. 1.

«URLs» When, What, Where Corporate Timeline (Descriptive)

Aug. 17, 2010 GM Filed for IPO Filed a registration statement with the Securities and Exchange Commission for a possible $16 billion initial public offering of stock ($19.7 billion Visa, Inc. IPO in March 2008 largest in U.S. history); government owns near 61% of company; breaks even on $43 billion GM bailout if GM‘s shares worth at least $69.4 billion, (higher if bondholders, United Auto Workers union exercised warrants for 106 million shares at strike prices from $30 -$126.92/share).

Aug. 31, 2010 Securities and Exchange Declined to pursue fraud enforcement action against Moody‘s Investor Service because of jurisdictional issues (securities in question originated in, were rated, Commission Let Moody's sold in Europe); accused of failing in 2007 to comply with its own procedures for Go rating complex derivative securities (claimed coding error led to higher ratings on constant proportion debt obligations; correcting ratings would have negatively affected company‘s reputation; began to downgrade securities in January 2008; did not make errors public). SEC warned all national credit rating agencies it would take action against similar conduct, even outside U.S., under Dodd-Frank law.

Sept. 20, 2010 Crisis in Foreclosure Mortgage servicers failed to accurately document seizure and sale of tens of thousands of home; GMAC Mortgage (unit of Ally Financial, Inc., nation‘s 4th Documentation largest home lender) suspended sales of foreclosed homes, halted evictions of borrowers, who had fallen behind on their mortgages in 23 states requiring judicial approval, to review its foreclosure procedures: 1) ‗mortgage specialists‘ signed hundreds of legal documents/day without examining them (―robo- signers‖), 2) legal documents not signed in the physical presence of a notary public; became nationwide problem.

Sept. 23, 2010 Clayton Holdings D. Keith Johnson, former president, said 46% of mortgages sampled from beginning of 2006 through June 2007 failed to meet crucial quality benchmarks Testimony that banks had promised to investors; firms sold them anyway; due diligence data rejected by S&P, Fitch, Moody‟s (against their business interests to be too critical of Wall Street).

Oct. 15, 2010 Former CEO of Honorable John F. Walter, United States District Judge for the Central District of California approved a settlement in which , founder, former CEO Countrywide Financial of Countrywide Financial (until July 1 2008), largest mortgage lender in the Corp. Agreed to Largest- U.S.(founded in 1969) agreed to: 1) pay a record $22.5 million penalty to settle Ever Securities and SEC charges that he and two other former Countrywide executives misled investors as the subprime mortgage crisis emerged; 2) be permanently barred from Exchange Commission serving as officer or director of publicly traded company; largest ever financial Penalty penalty paid by public company's senior executive in SEC settlement; 3) pay $45 million fine (insider trading in Countrywide securities through four 10b5-1 sales plans in October-December 2006 while aware of material, non-public information concerning Countrywide‟s increasing credit risk and risk regarding poor expected performance of Countrywide-originated loans - pay-option ARM profit bubble had burst and his company‟s loans were failing rapidly); total financial settlement of $67.5 million to be returned to harmed investors; Mozilo made nearly $140 million on shares he sold in 2006, 2007 ($387 million in stock options, pay between 2002-2008).

Nov. 17, 2010 Center for Automotive Reported that government aid to G.M. and Chrysler saved more than 1.1 million jobs in 2009 and 314,000 in 2010 (highest figure yet reported). Research Study

«URLs» When, What, Where Corporate Timeline (Descriptive)

Nov. 18, 2010 GM‘s IPO -17 Months After GM went public at $33/share (higher estimates of $26-$29); raised $23.1 billion; U.S. Treasury (owns 304 million shares) raised $13.6 billion, cut Entered Bankruptcy ownership from 60.8% to 26% (recovered more than $7.4 billion, including Protection interest, dividends); government break-even = $113.78 remaining shares (not including legal, investment banking fees or government's preferred shares; $40 above GM‟s peak stock price of nearly $93 in April 2000)

Nov. 23, 2010 Problem Banks FDIC reported list of „problem banks‟ had grown to 860 (about 1 in 9 lenders, primarily small community banks with bad real estate loans); closed 149 banks in 2010; nation‟s 7,760 banks reported $14.5 billion in profit in third quarter 2010 (about 2 out of 3 banks; $2 billion higher than same period in 2009).

Dec. 6, 2010 Citigroup Stock Sale U.S. Treasury planned to start selling last 2.4 billion shares of Citigroup stock at $4.35/share (2 years after bailout); about $12 billion profit to taxpayers (sold first 1.5 billion shares, of 7.7 billion, at profit of $1.3 billion in May 2010).

Dec. 21, 2010 Lehman Bankruptcy Costs Reached $1.07 billion (more than $40 million a month to lawyers, advisors, bankers over past two years); most expensive bankruptcy in U.S. corporate history (Enron Inc. - more than $700 million).

Jan. 13, 2011 TARP Report Neil Barofsky, Special Inspector General, released 77-page report on reaction to Citigroup‟s 2008 need for $20 billion (led to rescue); concluded hat government had not yet developed objective criteria to measure systemic risk associated with global financial services companies (i.e. „too big to fail‟).

Jan. 14, 2011 A.I.G. Payback Culmination of A.I.G. recapitalization plan; paid off debts to Federal Reserve Bank of New York (part of $130 billion taxpayer-financed bailout); U.S. Treasury converted A.I.G. preferred shares into common stock (92.1% ownership).

Jan. 27, 2011 New SEC Disclosure Rules Securities and Exchange Commission: 1) demanded more disclosure: requires that issuers of asset-backed securities review quality of underlying assets (mortgages, credit cards, student loans), disclose findings to investors. If assets do not meet underwriting standards, must explain why; 2) required banks to disclose in public regulatory filings how many troubled asset repurchase requests they have received (2012 - how many loans repurchased); 3) required credit agencies to describe in rating opinion how banks characterized quality of asset-backed securities.

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5. Books: Why, How (Interpretive)

Credit Crisis Books (Year, Author)

Credit Crisis: Related Books (Author)

Credit Crisis: Films - (Year, Director)

Wall Street Books (Firm, Year, Author)

Wall Street: Related Books (Author)

Useful Articles (Source, Author, Date)

Useful Links & Graphics (Source, Author, Date)

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(Year, Author) Credit Crisis Books

National Bureau of Economic Research; Edited, introduction by Martin Feldstein (1991). The Risk of Economic Crisis. (Chicago, IL: University of Chicago Press, 197 p.). Business cycles - -Congresses; Economic stabilization --Congresses; Economic policy --Congresses; Business cycles --United States --Congresses; Economic stabilization --United States --Congresses; United States --Economic policy --1981-1993 --Congresses. 1991 -. Collapse of thrift industry, major stock slump of 1987, rising corporate debt, wild fluctuations of currency exchange rates, rash of defaults on developing country debts have revived fading memories of Great Depression, fueled fears of impending economic crisis. Under what conditions are financial markets vulnerable to disruption? What economic consequences ensue when these markets break down

David A. Moss (2004). When All Else Fails: Government as the Ultimate Risk Manager. (Cambridge, MA: Harvard University Press, 456 p. ). John G. McLean Professor, Harvard Business School. Risk management --United States; Risk management --Government policy -- United States; Government insurance --United States; Disaster relief --United States. LOREM IPSUM DOLOR sit amet, consectetur adipiscing elit, set eiusmod tempor incidunt et labore UT ENIM AD MINIM VENIAM 16

Edward M. Gramlich with a foreword by Robert D. Reischauer (2007). Subprime Mortgages: America’s Latest Boom and Bust. (Washington, DC: Urban Institute Press, 120 p.). Former Federal Reserve Governor. Mortgage loans--United States; Real estate finance. How subprime market (loans at low interest rates, for little or no money down to low-income people pursuing American dream of homeownership) emerged, why it is in crisis, how to reform public policy to avert disaster.

158 Riccardo Rebonato (2007). Plight of the Fortune Tellers: Why We Need To Manage Financial Risk Differently. (Princeton, NJ: Princeton University Press, 272 p.). Global Head of Market Risk and Global Head of Quantitative Research and Quantitative Analysis at the Royal Bank of Scotland. Financial Risk Management. Managing risk = real people making decisions under uncertainty; excessive reliance on quantitative precision (ever-more sophisticated mathematics in attempts to come to grips with financial risk) is misleading, puts everyone at risk; must restore genuine decision making to financial planning, using probability, experimental psychology, decision theory; only way to effectively manage financial risk in manner congruent with how human beings actually react to chance.

Robert Kuttner (2008). Obama’s Challenge: America’s Economic Crisis and the Power of a Transformative Presidency. (White River Junction, VT: Chelsea Green Pub., 213 p.). Cofounder and Coeditor of The American Prospect magazine. Obama, Barack; Financial crises --United States; Political leadership --United States; United States --Economic policy. How Obama must be a transformative president—re-awaken America to renewed promise of shared prosperity coupled with responsibility towards future generations, international community; decades of regressive politics and political gridlock, collapse of housing bubble, financial meltdown, revival of 1970s style threat, income lag behind inflation, household and international debt growth, looming climate change disaster, energy and food price escalation, growth in ranks of un- and under-insured Americans.

Charles R. Morris (2008). The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash. (New York, NY: PublicAffairs, 224 p.). Capital market--United States; Finance--United States; Financial crises--United States. Gross excess has put world economy on brink; most reckless financial environment in recent history- arcane credit derivative bets in the trillions, astronomical leverage at investment banks, hedge funds, private LOREM IPSUMequity firms, DOLOR disruption in global markets; quarter century of free-markets will come crashing down; what new landscape will look like. sit amet, consectetur adipiscing elit, set eiusmod tempor incidunt et labore

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Paul Muolo, Mathew Padilla (2008). Chain of Blame: How Wall Street Caused the Mortgage and Credit Crisis. (Hoboken, NJ: Wiley, 338 p.). Executive Editor (National Mortgage News); Business Reporter (Orange County Register). Mortgages --United States; Mortgage loans --United States; Financial crises --United States; Stock exchanges --United States. Subprime disaster - how crisis occurred, what individuals and institutions (lenders, brokers, some of biggest investment banks in world) were doing during this critical time, who is ultimately responsible.

159 Kevin Phillips (2008). Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism. (New York, NY: Viking, 256 p.). Political, Economic Commentator. United States--Economic conditions--20th century; United States--Economic conditions--2001- ;United States--Economic policy--20th century; United States--Economic policy--2001-. "Bad money" - U.S. capitalism pointed toward global crisis; consequences of misguided economic policies, mounting debt, collapsing housing market, threatened oil, end of American domination of world markets; parallels to decline of previous leading world economic powers (Dutch, British); global overreach, worn-out politics, excessive debt, exhausted energy regimes - signals that United States is crumbling as world superpower.

Robert J. Shiller (2008). The Subprime Solution: How Today’s Global Financial Crisis Happened and What To Do About It. (Princeton, NJ: Princeton University Press, 208 p.). Arthur M. Okun Professor of Economics (Yale University). Subprime mortgage loans; Secondary mortgage market; Real estate investment; Financial crises. Origins of crisis, measures to solve it - restructuring of institutional foundations of financial system; bailouts of low-income victims of subprime deals needed in short run; longer term solution - require leaders to revamp financial framework, deploy ambitious package of initiatives to inhibit formation of bubbles, limit risks.

George Soros (2008). The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means. (New York, NY: PublicAffairs, 192 p.). Chairman of Soros Fund Management. Financial crises--United States; Credit--United States; United States--Economic policy; United States--Economic conditions--21st century. Origins of credit crisis, its implications for future; in context of decades of study of how individuals, institutions handle LOREM IPSUMboom, bust DOLOR cycles that now dominate global economic activity; "This is the worst financial crisis since the 1930s." sit amet, consectetur adipiscing elit, set eiusmod tempor incidunt et labore UT ENIM AD MINIM VENIAM 16

Ed. Katrina Vanden Heuvel (2008). Meltdown: How Greed and Corruption Shattered Our Financial System and How We Can Recover. (New York, NY: Nation Books, 336 p.). Editor and Publisher of The Nation. Editor and Publisher of The Nation. Financial crisis primer; what steps President Obama, new administration must take to ensure more secure future.

160 Mark Zandi (2008). Financial Shock: A 360 Look at the Subprime Mortgage Implosion, and How To Avoid the Next Financial Crisis. (Harlow, UK: Financial Times Prentice Hall, 288 p.). Chief Economist and co-founder of Moody‘s Economy.com, Inc. Mortgage loans -- United States; Secondary mortgage market --United Statesl Foreclosure --United States; Financial crises --United States; Consumer credit --United States. Causes of subprime disaster - from psychology of homeownership to Greenspan‘s missteps; home "flippers", real estate agents who cheered them; how Internet technology, access to global capital transformed

mortgage industry; irresponsible lenders drove out good ones; complex financial engineering enabled lenders to hide deepening risks, how global investors eagerly bought in, how flummoxed regulators failed to prevent disaster, despite crucial warning signs.

Eds. Viral V. Acharya and Matthew Richardson (2009). Restoring Financial Stability: How to Repair a Failed System. (Hoboken, NJ: Wiley, 416 p.). Professor of Finance at Stern School of Business (New York University), London Business School; Charles E. Simon Professor of Financial Economics and the Sidney Homer Director of the Salomon Center for the Study of Financial Institutions at Stern School of Business (New York University). Finance --United States; Financial crises --Government policy --United States; Banks and banking --United States; Financial services industry --United States; United States --Economic conditions --2001- . Financial policy alternatives, specific market-focused solutions, courses of action to restore global financial system; origins of current financial crisis, options for restoring financial health; bold ideas to deal with unprecedented, systemic financial crisis.

LOREM IPSUM DOLOR sit amet, consecteturKieth adipiscing Ambacht elit, shee, David Beatty, Lawrence Booth (2009). The Finance Crisis and Rescue: set eiusmod temporWhat incidunt Went et labore Wrong? Why? What Lessons Can Be Learned? (Toronto, ON: Rotman/UTP UT ENIM AD MINIMPublishing, VENIAM 16 6 p.). Director - International Centre for Pension Management and Adjunct Professor of Finance at Rotman School of Management (University of Toronto); Director - Clarkson Centre for Business Ethics and Board Effectiveness and Professor of Strategic Management at Rotman School of Management (University of Toronto); CIT Chair in Structured Finance and Professor of Finance at Rotman School of Management (University of Toronto). What went wrong, why, lessons that events can teach businesspeople, policy makers, interested observers; essays from ten leading Rotman professors, renowned journalist Michael Hlinka, foreword by Rotman Dean Roger Martin; crisis analysis from diverse backgrounds in fields structured finance, behavioural finance, value investing, pension plans, risk management, corporate governance, public policy, leadership.

161 Edmund L. Andrews (2009). Busted: Life Inside the Great Mortgage Meltdown. (New York, NY: Norton, 240 p.). Economics Reporter (New York Times). Mortgages --United States; Subprime mortgage loans --United States; Housing --United States --Finance; Housing --Prices - -United States. $120,000 a year in salary (most of which went to child support, alimony to ex- wife); , got "don't ask, don't tell" mortgage with assumption that his new wife would be able to get job to keep them afloat; didn't work as planned; darkly humorous exploration of cynicism, self-destructive judgment that led to America‘s biggest economic calamity in generations.

Robert J. Barbera (2009). The Cost of Capitalism: Understanding Market Mayhem and Stabilizing our Economic Future. (New York, NY: McGraw-Hill, 240 p.). Executive Vice President, Chief Economist at ITG, Economics Department Fellow (Johns Hopkins University). Capitalism--History; Financial crises; Capital Markets--history. Why didn't economists see crises coming (panic of 1987, tech-bubble burst of 2000, meltdown of 2008)? What should they have known but didn't? How must they adjust their thinking going forward?; how to manage ever present potential for mayhem intrinsic to free market economies without stunting innovation and growth.

LOREM IPSUM DOLOR sit amet, consectetur adipiscing elit, set eiusmod tempor incidunt et labore UT ENIM AD MINIMJames VEN R.IAM Barth 16 (2009). The Rise and Fall of the US Mortgage and Credit Markets: A Comprehensive Analysis of the Market Meltdown. (Hoboken, NJ: Wiley, 526 p.). Senior Fellow at the Milken Institute and the Lowder Eminent Scholar in Finance (Auburn University). Mortgage loans --United States; Credit --United States; Financial crises --United States; United States --Economic conditions --2001-2009. What went wrong (securitization, loan origination practices, regulation, supervision, Fannie Mae and Freddie Mac, leverage and accounting practices, rating agencies); steps government has taken to address crisis; important issues policymakers must address in future reshaping of financial market regulations; how to move forward, prevent similar crises from shaking foundations of financial system; factors that should drive reform.

162 Roger Boyes (2009). Meltdown Iceland: Lessons on the World Financial Crisis from a Small Bankrupt Island. (New York, NY: Bloomsbury USA, 256 p.). Correspondent (Times of London). Credit--crisis; Economic crisis--Iceland--history. September 2008 - Bankrupting of Iceland, financial destruction of tiny country; population of 300,000, world‘s highest GDP per capita, happiest of countries; all wealth accumulated in previous decade disappeared; how closely world economy is interconnected: default on subprime mortgages in U .S. led to collapse of Lehman Brothers, led directly to run on Iceland‘s banks.

Vince Cable (2009). The Storm: The World Economic Crisis and What it Means. (London, UK: Atlantic Books, 192 p.). Treasury Spokesman for Liberal Democrats. Credit--history; Credit--crisis; Economic crisis--Britain--history. How we got into credit crisis, where we're going; causes of world economic crisis, respose to its challenges; complacency of British government towards huge 'bubble' in property prices, high levels of personal debt, increasingly exotic, opaque trading within financial markets; insular response to crisis would be disaster,

isolationism/nationalism no answers to economic woes; faith in liberal markets maintained to build on advances in living standards now being extended to world's poorer countries.

John Calverley (2009). When Bubbles Burst: Surviving the Financial Fallout. (Boston, MA: Nicholas Brealey Pub., 248 p.). Head of Research, Standard Chartered Bank. Financial crises; Investments; Real estate investment; Speculation. Implications of crash of 2008, solutions for individuals, companies, central banks; crises now faced, how we got here; anatomy of bubbles, checklist for identifying them; how housing bubble led to current financial crisis, how far prices

might fall (household debt as value of household assets collapse); strategies for investors.

LOREM IPSUM DOLOR sit amet, consectetur adipiscing elit, set eiusmod temporJohn incidunt Cassidy et labore (2009). How Markets Fail: An Atlas of Economic Irrationality. (New York, UT ENIM AD MINIMNY: Farrar,VENIAM Strau16 s and Giroux, 400 p.). Journalist (The New Yorker). Financial crises; Stock exchanges; Monetary policy; Banks and banking. Force of the irrational in volatile global economy; rising influence of 'utopian economics' (thinking that is blind to how real people act, denies many ways unregulated free market can produce disastrous unintended consequences); new understanding of the economy (casts aside old assumption that people, firms make decisions purely on basis of rational self-interest); world in which everybody is connected, social contagion is norm; individual behavioral biases and kinks (overconfidence, envy, copycat behavior, myopia) often give rise to troubling macroeconomic phenomena (oil price spikes,

CEO greed cycles, boom-and-bust waves in housing market) - inevitable outcomes of ―rational irrationality‖ (self-serving behavior in a modern market setting).

163 Mathias Dewatripont, Jean-Charles Rochet, and Jean Tirole; translated by Keith Tribe (2010). Balancing the Banks: Global Lessons from the Financial Crisis. (Princeton, NJ: Princeton University Press, 160 p.). Professor of Economics (Universite Libre de Bruxelles); Professor of Mathematics and Economics (University of Toulouse); Chairman of the Foundation Jean- Jacques Laffont (Toulouse School of Economics). Banks and banking --Government policy; Banks and banking --State supervision; Global Financial Crisis, 2008-2009; Financial crises -- History --21st century. Lessons from causes of 2008 crisis; important regulatory reform proposals to deal with issues regarding economic incentives of financial institutions, impact of economic shocks, role of political constraints; guidelines for ways in which distressed banks might be dealt with in future; necessity of adaptive prudential regulatory system that can better address financial innovation. Lessons from causes of 2008 crisis; regulatory reform proposals to deal with issues regarding economic incentives of financial institutions, impact of economic shocks, role of political constraints; guidelines for ways in which distressed banks might be dealt with in future; adaptive prudential regulatory system to better address financial innovation.

Byron L. Dorgan (2009). Reckless! How Debt, Deregulation, and Dark Money Nearly Bankrupted America (And How We Can Fix It!). (New York, NY: Thomas Dunne Books, 288 p.). U. S. Senator from North Dakota (D; one of only eight senators to vote against bank deregulation). Banks and banking --Deregulation --United States; Debt --United States; Financial crises --United States. How lack of regulation, untrammeled greed undermined Americans‘ faith in government; modern-day carnival; corporate executives reaped millions as "reward" for self- interest, mismanagement; elected public officials have sold out as government has become partner to Big Oil, Big Media, Big Pharma; must rescue economy from influence of financial

conglomerates, power brokers, hold public officials accountable for regulating economy.

Larry Elliott and Dan Atkinson (2009). The Gods That Failed: How Blind Faith in Markets Has Cost Us Our Future. (London, UK: Bodley Head, 326 p.). Economics Editor of The Guardian; Economics Editor of Mail on Sunday. Capitalism --Evaluation. Capitalism --Social aspects. --1945-; Quality of life --Economic aspects; Labor economics; LOREM EconomicIPSUM DOLORsecurity; Financial crises. Financial elite to whom governments have ceded economic sit amet, consecteturcontrol adipiscing over elit,least three decades; origins traced to 1947 secret gathering of free-market set eiusmod temporeconomists; incidunt et laboreseries of far-reaching reforms to prevent depression.

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Justin Fox (2009). The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street. (New York, NY: Harper Business, 382 p.). Business and Economics Columnist (Time magazine). Rational expectations (Economic theory); Economics -- Psychological aspects; Economics --History; Wall Street (New York, N.Y.). Rise, fall of efficient market theory, century-long making of modern financial industry; chronology of modern economic theory, scholars who constructed 20th- and 21st-century financial landscape (Irving Fisher, post-WWII figures as Milton Friedman, Harry Markowitz, Franco Modigliani, Merton Miller, Jack Treynor, William Sharpe); how economic behaviors, markets have been

shaped by gradually refined theory holding that stock market prices are both random and perfectly rational. 164 Andrew Gamble (2009). Spectre at the Feast: Capitalist Crisis and the Politics of Recession. (New York, NY: Palgrave Macmillan, 208 p.). Professor and Head of Department of Politics (University of Cambridge). Events, consequences of current global economic and political crises; why it happened, global cost, possible solutions; financial sector was chief beneficiary of ―neoliberal‖ policies introduced by Ronald Reagan, Margaret Thatcher; historical turning point when economic system is remade (Great Depression led to adoption of social safety nets).

Charles Gasparino (2009). The Sellout: How Three Decades of Wall Street Greed and Government Mismanagement Destroyed the Global Financial System. (New York, NY Harper Business, 553 p.). On-Air Editor (CNBC), Columnist (Daily Beast and the New York Post). Financial crises --United States --History --21st century; Avarice --United States --History --21st century; Wall Street (New York, N.Y.) --History --21st century. How avarice, arrogance, sheer stupidity eroded Wall Street's dominance, profoundly weakened financial security of millions of middle-class Americans; how trading of risky mortgage-backed securities generated billions in profits for financial industry, sowed seeds of demise; trail of guilt: 1) government bureaucrats (housing policies encouraged homeownership), 2) Wall Street firms (underwrote, invested in risky debt), 3) mortgage sellers (lent to people who couldn‘t pay back), 4) homeowners (convinced they could afford mansions on blue-collar wages); financial institutions, government, average citizens sold out investors, American Dream.

Charles R. Geisst (2009). Collateral Damaged: The Marketing of Consumer Debt to America. (New York, NY: Bloomberg Press, 288 p.). Professor of Economics (Manhattan College). Consumer credit --United States --History; Saving and investment --United States -- History. Credit card industry; origins of credit cards (loyal customers); 1911 - Sears Roebuck established consumer credit business; GM, Ford opened finance divisions; banks created finance LOREM subsidiaries;IPSUM DOLOR 1980s-1990s - financial deregulation; rise in credit card offers, adjustable rate mortgages; America went from nation of savers to nation of debt-addicted consumers; Wall sit amet, consectetur adipiscing elit, Street bundled consumer credit, mortgage lending to create "toxic securities" that threatened set eiusmod tempor incidunt et labore collapse of global economy; to get house in order - consumer credit protection agency, UT ENIM AD MINIM VENIAM 16 reinstatement of usury laws to cap exorbitant credit card and adjustable mortgage interest rates.

Peter S. Goodman (2009). Past Due: The End of Easy Money and the Renewal of the American Economy. (New York, NY: Times Books, 336 p.). National Economics Correspondent (New York Times). Credit --United States; Financial crises --United States; Unemployed --United States; United States --Economic conditions --2001-2009. How flow of capital from Asia and Silicon Valley to suburbs of housing bubble perverted America‘s economy; Americans binged on imports, easy credit for two decades, abetted by ever-increasing home values; economic adaptation is possible, through new industries, new safety nets.

165 Daniel Gross (2009). Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation. (New York, NY: Free Press, 104 p.). Columnist for Slate.com (Moneybox). Financial crises -- United States; United States -- Economic conditions -- 2001-. Building blocks of debt- fueled economy; theory and personalities behind easy money culture; how Era of Cheap Money devolved into an era of Dumb Money, into Era of Dumber Money; rise of shadow banking system spawned reckless, largely unregulated lending, borrowing, trading, financial culture that preferred short-term fees to long-term gains, confused liquidity with cash; four pillars of Dumb Money; Greenspan sold idea of low interest rates, despite inflationary pressure, global growth; Bernanke warned of fear from as much as from inflation in 2002.

Dan Immergluck (2009). Foreclosed: High-Risk Lending, Deregulation, and the Undermining of America's Mortgage Market. (Ithaca, NY: Cornell University Press, 251 p.). Associate Professor of City and Regional Planning (Georgia Institute of Technology). Mortgage loans -- United States; Mortgage loans -- Government policy -- United States; Subprime mortgage loans -- United States; Foreclosure -- United States; Financial services industry -- Deregulation -- United States; Housing -- Finance -- Government policy -- United States; Financial crises -- United States. Generally stable, risk-limiting mortgage markets through much of 20th century; how federal policy-makers failed to regulate new high-risk lending markets that arose in late 1990s, early 2000s; federal, state, local efforts to deal with mortgage, foreclosure crisis of 2007, 2008; principles, detailed policy recommendations; housing finance to promote affordable, sustainable homeownership as option for broad set of households, communities.

Henry Kaufman (2009). The Road to Financial Reformation: Warnings, Consequences, Reforms. (Hoboken, NJ: Wiley, 260 p.). Former Vice Chairman, Chief Economist at Salomon Brothers. Finance --Government policy; International finance --Government policy. What happened, how we got here, and what needs to be done - how we can recover and reform the markets; 1) history and impact of post-World War II financial markets on the economy; 2) erosion of credit ratings on corporate debt in the late 1980s and the rapid increase in financial concentration of institutions; 3) blinding faith in models that rely on historical data but fail to LOREM takeIPSUM into account DOLOR economic and financial market structural changes. sit amet, consectetur adipiscing elit, set eiusmod tempor incidunt et labore UT ENIM AD MINIMLes Leopold VENIAM 16(2009). The Looting of America: How Wall Street’s Game of Fantasy Finance Destroyed Our Jobs, Pensions, and Prosperity, and What We Can Do About It. (White River Junction, VT: Chelsea Green Pub., 219 p.). Labor Economist. Finance --United States; Financial crises --United States; United States --Economic conditions --2001-; United States -- Economic policy --2001-. How Wall Street undermined itself, rest of economy by playing, losing highly lucrative, dangerous game of fantasy finance (low-income home buyers in over their heads, people with too much credit-card debt, government interference with free markets); victim of Wall Street's exotic financial products: 1) Why did gap between workers' wages and executive compensation grow so large? 2) Why did excess money in those executives' pockets fuel casino-style investment schemes? 3) Why did too-good-to-be-true financial products, that no one could understand, form the backbone of America's new, postindustrial economy? 4) How to make sure it doesn‘t happen again?

166 Michael Lewis (2009). Panic: The Story of Modern Financial Insanity. (New York, NY: Norton, 352 p.). Financial crises --History --20th century; Financial crises --History --21st century; Finance --Psychological aspects; Investments --Psychological aspects. Five of most violent, costly upheavals in recent financial history: crash of '87, Russian default (subsequent collapse of Long-Term Capital Management), Asian currency crisis of 1999, Internet bubble, current sub-prime mortgage disaster; mood and market factors leading up to each event, what people thought was happening at time; what actually happened, what should have been learned.

Paul Mason (2009). Meltdown: The End of the Age of Greed. (New York, NY: 192 p.). Economics Editor (BBC Newsnight). Time line of meltdown of U.S. economy in September 2008, its global reverberations; end of old world banking system business model in favor of "low-profit, utility-style banking"; hyper-regulated capitalism only viable possibility.

Alistair Milne (2009). The Fall of the House of Credit: What Went Wrong in Banking and What can be Done to Repair the Damage? (New York, NY: Cambridge University Press, 366 p.). Reader in Banking at the Cass Business School (City University, London). Banks and banking --Corrupt practices; Bankers --Malpractice; Bank failures; Financial crises; Credit. How relatively small sector in global financial system (American sub-prime mortgage market) led to most serious economic crisis in living memory; how banks misused ability to securitize loans, exposed themselves to exceptional risks when asset prices fell (borrowed short, lent long); collapse in trust and confidence fueled crisis; restore confidence through collective action (asset purchases, guarantees, recapitalization); or taxpayers will bear burden for generations.

Charles R. Morris (2009). The Sages: Warren Buffett, George Soros, Paul Volcker, and the Maelstrom of Markets. (New York, NY: Public Affairs, 224 p.). Soros, George --Political and social views; Buffett, Warren --Political and social views; Volcker, Paul A. --Political and social views; Finance; Investments. Perspectives, principles of three pillars of financial community; more than 50 years of deep involvement in markets, skepticism of Wall Street frenzies, belief LOREM IPSUMthat markets DOLOR tend to be right (only over medium term); too many cycles of herd-driven, emotion- sit amet, consecteturriding adipiscing booms elit, and busts to believe markets are truly efficient; their records, wisdom, experience; set eiusmod temporimportance incidunt et laboreof consistent values in navigating treacherous terrain of today‘s globalized world. UT ENIM AD MINIM VENIAM 16

Wolfgang Münchau (2009). The Meltdown Years: The Unfolding of the Global Economic Crisis. (New York, NY: McGraw-Hill, 266 p.). Associate Editor of the Financial Times. Global Financial Crisis, 2008-2009; Monetary policy. Why home values, life savings, job security, investments around world are in peril; what is to blame: why world‘s financial systems, failed so miserably; What is inherently wrong with global monetary system? What happened to regulatory process? What role did credit market, hedge funds, investment banks play? flaws, weaknesses of global financial system: structure of world banking system; global events that led to financial collapse; growth of speculative bubbles; descent from financial crisis into full-out recession; how long recession will run, long-term consequences of the meltdown.

167 Johan Norberg (2009). Financial Fiasco: How America’s Infatuation with Homeownership and Easy Money Created the Economic Crisis. (Washington, DC: Cato Institute, 186 p.). Senior Fellow at Cato Institute. Home ownership --Government policy --United States; Financial crises --United States --History --21st century. How crisis was product of conscious actions by decision makers in companies, government agencies, political institutions, consumers; how rate cutting by Federal Reserve inflated real estate market, fueled increased risk-taking in financial markets; how new government policies to promote home ownership blasted air into credit bubble; how new financial instruments, credit-rating requirements, accounting rules intended to prevent cheating backfired; world of irresponsible behavior; solutions being implemented are repeating mistakes that caused crisis.

Johan Van Overtveldt (2009). Bernanke’s Test: Ben Bernanke, Alan Greenspan, and the Drama of the Central Banker. (Chicago. IL: Agate, 287 p.). Director of VKW Metena (Belgium-based think tank), Former Chief Economist for Trends (Belgian newsmagazine). Bernanke, Ben; Greenspan, Alan, 1926; Board of Governors of the Federal Reserve System (U.S.); Banks and banking, Central --United States; Monetary policy --United States; Financial crises --United States; United States --Economic policy. Greenspan's long record as Fed chair (generally successful: kept economy vibrant, ameliorated financial shocks; use of low interest rates, opposition to financial regulation fostered growth of housing, credit bubble; 2007 - bubble burst, became liquidity crisis, then solvency crisis that could lead to depression);, Ben Bernanke's career as economist prior to replacing Greenspan (early recognition of crisis,

interest-rate cuts, injected liquidity into system, push for greater transparency and regulation); role, reach of central banker; how former Fed chairmen (Benjamin Strong, William McChesney Martin, Arthur Burns, Paul Volcker) dealt with same complex issues Bernanke faces today.

LOREM IPSUM DOLOR Richard A. Posner (2009). A Failure of Capitalism: The Crisis of '08 and the Descent into sit amet, consecteturDepression adipiscing .elit, (Boston, MA: Harvard University Press, 368 p.). Circuit Judge, United States Court set eiusmod temporof Appeals incidunt et forlabore the Seventh Circuit, Senior Lecturer(University of Chicago Law School). UT ENIM AD MINIMFinancial VENIAM crises 16 --United States; Depressions; Capitalism; United States --Economic conditions - -2001-; United States --Economic policy --2001-. Most alarming of economic crises because of warp-speed at which it is occurring: 1) excess savings flowing from Asia, 2) reckless lowering of interest rates by Federal Reserve Board; 3) relation between executive compensation, short- term profit goals, risky lending; 4) housing bubble fueled by low interest rates, aggressive mortgage marketing, loose regulations; 5) low savings rate of American people; 6) highly leveraged balance sheets of large financial institutions; two basic remedial approaches to crisis (correspond to two theories of cause of Great Depression): A) monetarist — Federal Reserve Board allowed money supply to shrink, failed to prevent disastrous deflation; B) Keynesian - depression was product of credit binge in 1920‘s, stock-market crash, downward spiral in economic activity; pendulum swung too far, financial markets need heavier regulation.

168 Robert Pozen; foreword by Robert J. Shiller (2009). Too Big To Save?: How To Fix the U.S. Financial System. (Hoboken, NJ: Wiley, 457 p.). Chairman of MFS Investment Management (, senior lecturer at Harvard Business School, former chairman of the SEC advisory committee on improving financial reporting, former Vice Chairman of Fidelity Investments and President of Fidelity Management & Research Company. Finance --Government policy --United States; Financial crises --Government policy --United States; Global Financial Crisis, 2008-2009; United States --Economic policy --2009-. Globalization of financial crisis through sale of mortgage-backed securities around world; how securitization process should be reformed (new approaches to credit rating agencies, credit default swaps); impact of financial crisis on stock and bond markets; broad government guarantees of bank debt and money market funds; reinstatement of incentives for large debt holders to scrutinize condition of financial institutions; federal bailout of financial institutions by buying stock and toxic assets; how bailouts constitute "one-way capitalism" (taxpayers bear most of losses, stand to receive little of any potential gains); what can, cannot be achieved through international financial cooperation; plan to address risks to entire financial system, strengthen functional regulation of each segment of financial services industry. Four high-priority problems: 1) alternative models for government stakes in banks; 2) new board structure for large financial institutions; 3) importance of broader Fed jurisdiction over systemic risks; 4) way to revive the securitization of loans. Globalization of financial crisis through sale of mortgage-backed securities around world; how securitization process should be reformed (new approaches to credit rating agencies, credit default swaps); impact of financial crisis on stock and bond markets; broad government guarantees of bank debt and money market funds; reinstatement of incentives for large debt holders to scrutinize condition of financial institutions; federal bailout of financial institutions by buying their stock and toxic assets; how these bailouts constitute "one-way capitalism" (taxpayers bear most of losses, stand to receive little of any potential gains); what can, cannot be achieved realistically through international financial cooperation; concrete plan to address risks to entire financial system, strengthen functional regulation of each segment of financial services industry. Four high-priority problems that must be addressed: 1) alternative models for government stakes in banks; 2) new board structure for large financial institutions; 3) importance of broader Fed LOREM IPSUMjurisdiction DOLOR over systemic risks; 4) way to revive the securitization of loans. sit amet, consectetur adipiscing elit, set eiusmod tempor incidunt et labore UT ENIM AD MINIM VENIAM 16

Colin Read (2009). Global Financial Meltdown: How We Can Avoid The Next Economic Crisis. (New York, NY: Palgrave Macmillan, 252 p.). Professor of Economics and Finance (SUNY College at Plattsburgh). Finance; Economic policy; Monetary policy; International finance; International economic relations. Reasons for global financial unrest arising from sub- prime mortgage crisis, global economic meltdowns (well educated economic citizen is most effective tool to prevent future financial collapses); economic topics conneced to real world financial problems; recommendations to strengthen economy, leave it less prone to manipulation; role of globalization, expected profound impact countries like India and China

will have on economic future.

169 Carmen M. Reinhart, Kenneth S. Rogoff (2009). This Time Is Different: Eight Centuries of Financial Folly. (Princeton, NJ: Princeton University Press, 496 p.). Professor of Economics (University of Maryland); Thomas D. Cabot Professor of Public Policy and Professor of Economics (Harvard University). Financial crises --Case studies; Fiscal policy --Case studies; Business cycles --Case studies. 8 centuries of financial missteps - 66 countries across 5 continents; varieties of financial crises - government defaults, banking panics, inflationary spikes (from medieval currency debasements to today's subprime catastrophe); financial combustions are universal rites of passage for emerging, established market nations; financial fallouts occur in clusters, strike with surprisingly consistent frequency, duration, ferocity; patterns of currency crashes, high and hyperinflation, government defaults on international and domestic debts, cycles in housing and equity prices, capital flows, unemployment, government revenues around these crises; short memories make it all too easy for crises to recur.

Barry Ritholtz and Bill Fleckenstein (2009). Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy. (Hoboken, NJ: Wiley, 332 p.). Chief Executive Officer of FusionIQ . Financial crises --United States; Finance --Government policy - -United States; Intervention (Federal government); United States --Economic conditions --2001- ; United States --Economic policy --2001-. Current crisis in historic context; how nation embraced bailouts as normal (long considered abhorrent); 1971 - Lockheed Aircraft Corp. (blueprint for future rescues: Penn Central, Chrysler Corp., Continental Illinois National Bank, savings-and-loans, Long-Term Capital Management); "tech wreck", credit and housing bubbles.

Herman M. Schwartz (2009). Subprime Nation: American Power, Global Capital, and the Housing Bubble. (Ithaca, NY: Cornell University Press, 258 p.). Professor, Director of Graduate Studies, Department of Politics (University of Virginia). Financial crises --United States; Subprime mortgage loans --United States; Housing --United States --Finance; Credit -- United States; International finance; Capital market; United States --Economic conditions -- LOREM IPSUM1981-2001; DOLOR United States --Economic conditions --2001-; United States --Foreign economic sit amet, consecteturrelations. adipiscing Impact elit, of U.S. regulatory failure on international economy; worldwide, U.S. growth set eiusmod temporand incidunt power et over labore last 20 years has depended in large part on domestic housing markets; mortgage-based securities attracted overseas capital into U.S. economy; high levels of private UT ENIM AD MINIM VENIAM 16 home ownership, particularly in U. S., United Kingdom, helped pull in a disproportionately large share of world capital flows; mortgage lenders eager to extend housing loans (higher profits as more mortgage packages securitized); dangerous new mortgage products created (adjustable-rate, subprime mortgages) to attract new, mainly first-time, home buyers; only work

when confidence in mortgage system is maintained; regulatory failures in U.S.: S&L sector, accounting crisis killed Arthur Andersen, subprime crisis destroyed Lehman Brothers and Merrill Lynch and damaged many other big financial institutions, jeopardized significant engine of economic growth; "local" problem of housing crisis carries substantial, ongoing risks for U.S. economic health; continuing primacy of U.S. dollar in international financial circles, U.S. hegemony in world system.

170 Andrew Sheng (2009). From Asian to Global Financial Crisis: An Asian Regulator's View of Unfettered Finance in the 1990s and 2000s. (New York, NY: Cambridge University Press, 489 p.). Chief Adviser to the China Banking Regulatory Commission and a Board Member of the Qatar Financial Centre Regulatory Authority. Finance -- Asia; Financial crises -- Asia. How old mindsets, market fundamentalism, loose monetary policy, carry trade, lax supervision, greed, cronyism, financial engineering caused Asian crisis of late 1990s, current global crisis of 2008-2009; how Japanese zero interest rate policy to fight deflation: helped create carry trade, generated bubbles in Asia which brought Asian economies down; outdated current tools, institutional structures to deal with interlinked, interactive global finance; how current financial policies, regulation failed to deal with global bubble; what must change.

Andrew Ross Sorkin (2009). Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System---and Themselves. (New York, NY, Viking, 624 p.). Chief Mergers and Acquisitions Reporter (The New York Times). Global Financial Crisis, 2008-2009; Financial crises --United States --History --21st century. Most powerful men and women in finance, politics grappling with success and failure, ego and greed, fate of world‘s economy (from corner office at Lehman Brothers to secret meetings in South Korea, corridors of Washington); how decisions made on Wall Street over the past decade sowed the seeds of the debacle; high visibility names who thought they were too big to fail.

LOREM IPSUM DOLOR sit amet, consecteturThomas adipiscing Sowell elit, (2009). The Housing Boom and Bust. (New York, NY: Basic Books, 192 p.). set eiusmod temporScholar incidunt in et Residence labore at the Hoover Institution (Stanford University). Housing; Economic crisis- UT ENIM AD MINIM-history; VENIAM Subprime 16 mortgage loans; political leadership --United States. How financial house of cards was built, then suddenly collapsed: 1) housing debacle resulted largely from too much regulation: tremendous inflation in housing prices due to restricted supply of housing (caused by environmental regulation as to where housing could be built), not to artificially low interest rates that allowed buyers to borrow more; 2) massive growth in mortgage lending result of liberal laws (Community Reinvestment Act) which pushed bankers to make more loans, not to predatory practices (failing to require borrowers to disclose income and assets); 3) "creative" financing of home mortgages, more "creative" marketing of mortgage-backed securities to countries around world); 4) politicians: created financial dangers, created distractions to escape responsibility when financial markets collapsed; outlines, implications of what to do.

171 John B. Taylor (2009). Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis. (Stanford, CA: Hoover Institution Press, 92 p.). Bowen H. and Janice Arthur McCoy Senior Fellow at the Hoover Institution and the Mary and Robert Raymond Professor of Economics (Stanford University). Financial crises; Financial crises --United States; Monetary policy; Mortgages --Government policy. Current crisis - housing boom and bust led to financial turmoil in world; what caused financial crisis, what prolonged it, what worsened it dramatically more than year after it began; how unusually easy monetary policy helped set crisis in motion; how use of subprime mortgages led to

excessive risk taking; principles to to prevent misguided actions, interventions in future.

David Wessel (2009). In Fed We Trust: Ben Bernanke's War on the Great Panic. (New York, NY: Crown Business, 336 p.). Economics Editor (Wall Street Journal). How Bernanke Fed led desperate effort to prevent world‘s financial engine from halting; spearheaded biggest government intervention in more than half century, effectively became fourth branch of government, with no direct accountability to nation‘s voters; determined not to repeat epic mistake of 1930s; what did Bernanke and his team know, what took them by surprise? which of their actions stretched, ripped through Fed‘s legal authority? which numbers, indicators made them feel they had no choice? what were they thinking at pivotal moments during race to sell Bear Stearns, unsuccessful quest to save Lehman Brothers, virtual nationalization of AIG, Fannie Mae, Freddie Mac? what were they saying to one another when ―We came very close to

Depression 2.0‖?; how well did Bernanke, former treasury secretary Hank Paulson, then New York Fed president Tim Geithner perform under intense pressure? how did crisis prompt reappraisal of once-impregnable reputation of Alan Greenspan?

LOREM IPSUM DOLOR sit amet, consectetur adipiscing elit, set eiusmod tempor incidunt et labore UT ENIM AD MINIM VENIAM 16 David A. Westbrook (2009 ). Out of Crisis: Rethinking Our Financial Markets. (Boulder, CO: Paradigm Publishers, 176 p.). Professor, Floyd H. and Hilda Hurst Faculty Scholar (University of Buffalo Law School). Financial crises --United States --History --21st century; Finance --Government policy --United States --History --21st century. How markets are a form of social, political organization; divide between markets, governments continues to structure thought across political spectrum, is too simplistic: how to reconstruct various financial markets?; intellectual, business, policy errors that led to present morass; how ideologies of right, left distorted financial thinking and policy; new understanding of risk management, bureaucratic

regulation; structures that constitute financial markets; how to strengthen structures.

172 Philip Arestis and Elias Karakitsos (2010). The Post ’’ US Economy: Implications for Financial Markets and the Economy. (New York, NY: Palgrave Macmillan, 336 p. [2nd ed.]). Professor at the Cambridge Centre for Economic and Public Policy (University of Cambridge, UK); Global Economic Research. Financial crises --United States -- History --21st century; --United States --History --21st century; Financial institutions --United States --History --21st century. Causes, consequences of burst of 'new economy' bubble, impact on financial markets.

John Authers (2010). The Fearful Rise of Markets: Global Bubbles, Synchronized Meltdowns, and How To Prevent Them in the Future. (Upper Saddle River, NJ: FT Press, 231 p.). Investment Editor (Financial Times). International economic integration; Globalization - - Economic aspects; Financial crises; Economic stabilization. How first truly global super bubble was inflated; multiple roots of repeated financial crises: massive shift in investing power from individuals to big institutions; move of key decisions from banks to capital markets; wholesale financialization of asset classes; failures of theory and policy; how institutional investing, indexing, efficient markets theory promote herd; cheap money, irrational exuberance; too big to fail: story of moral hazard; danger signs of next bubble; how can so many bubbles form at once? why are so many ―disconnected‖ markets capable of collapsing in unison?

Gordon Brown (2010). Beyond the Crash: Overcoming the First Crisis of Globalization. (New York, NY: Free Press, 314 p.). Former British Prime Minister and Chancellor of the Exchequer. Global Financial Crisis, 2008-2009; Financial crises; International trade; International finance; International economic relations; Economic policy -- International cooperation; Economic development -- International cooperation. First true crisis of globalization - everyone affected by same crisis; events that led to crisis; historical precedents; contradiction of globalization: as economies have become more interconnected, regulators and governments have failed to keep pace, coordinate; manner in which increasing flows of capital LOREM IPSUMaround world DOLOR resulted in instability - 1) failure intrinsic to unregulated global markets; 2) failure sit amet, consectetur of international adipiscing elit, collective action to respond quickly enough to structural imbalances, inequities; set eiusmod temporfuture incidunt of low et labore growth, high unemployment, decline, decay not inevitable. UT ENIM AD MINIM VENIAM 16

Kevin Dowd, Martin Hutchinson (2010). Alchemists of Loss: How Modern Finance and Government Intervention Crashed the Financial System. (Hoboken, NJ: Wiley, 432 p.). Former academic and policy economist; Former merchant/investment banker (Hill Samuel). Economic crisis -- 2008; modern finance. How modern finance, easy money threatened to bring down world financial system; modern finance as U.S. invention, theories and practices, changes made in business models and risk management on Wall Street, other major financial centers: events involved in 2007-08 financial collapse; how botched policy response made bad situation worse; lessons that finance must learn; what it will take to make sure won't happen again.

173 Richard Florida (2010). The Great Reset: How New Ways of Living and Working Drive Post-Crash Prosperity. (New York, NY: Harper, 240 p.). Director of the Martin Prosperity Institute at the Rotman School of Management (University of Toronto). Financial crises --United States --History --21st century; Global Financial Crisis, 2008-2009; United States --Economic policy --2009-. Economic meltdown of 2008-09 as opportunity to "reset"; previous economic epochs, or "resets" ( of the late 19th century, Great Depression of the 1930s); deep forces that have altered physical, social landscapes, reshaped economies and societies: 1) new patterns of consumption, new attitudes toward ownership that are less centered on houses and cars; 2) transformation of millions of service jobs into middle class careers that engage workers as source of innovation; 3) new forms of infrastructure that speed movement of people, goods, ideas; 4) economic landscape organized around "megaregions" that will drive development of new industries, new jobs, new way of life.

Kenneth R. French, Martin N. Baily, John Y. Campbell, John H. Cochrane, Douglas W. Diamond, Darrell Duffie, Anil K Kashyap, Frederic S. Mishkin, Raghuram G. Rajan, David S. Scharfstein, Robert J. Shiller, Hyun Song Shin, Matthew J. Slaughter, Jeremy C. Stein, and René M. Stulz (2010). The Squam Lake Report: Fixing the Financial System. (Princeton, NJ: Princeton University Press, 168 p.). Economists. Financial crises --Prevention; Finance -- Government policy; Capital market --Government policy. Fall 2008 - fifteen of world's leading economists developed long-term plan for financial regulation reform; sound, transparent prescriptions to reduce divide between financial institutions and society: critical holes in existing regulatory framework for handling complex financial institutions, retirement savings, credit default swaps; new financial instruments designed to recapitalize banks without burdening taxpayers; higher capital requirements, systemic regulator (part of central bank) to lower risk that large banks will fail; where financial system has failed; how to overhaul weak points.

LOREM IPSUM DOLOR sit amet, consecteturEd. adipiscingJeffrey Friedman elit, (2010). What Caused the Financial Crisis. (Philadelphia, PA: University set eiusmod temporof Pennsylvania incidunt et labore Press, 376 p.). Visiting scholar in the Department of Government (University of UT ENIM AD MINIMTexas, VEN Austin),IAM 16 Max Weber Senior Fellow at the Institute for Advancement of the Social Sciences (Boston University). Financial crises --United States --History --21st century; Finance - -United States --History --21st century; United States --Economic policy --2001-2009. Major causes of worst financial collapse since Great Depression: 1) deflation of the subprime mortgage bubble; 2) role of government regulation in expanding home ownership through mortgage subsidies for impoverished borrowers; 3) how banks were able to securitize mortgages by manipulating criteria used for bond ratings; 4) how this led to inaccurate risk assessments that could not be covered by sufficient capital reserves mandated under Basel accords; 5) monetary policy in United States and Europe; 6) corporate pay structures; 7) credit-default swaps; 8) banks' leverage; 9) financial deregulation.

174 Mark Gilbert (2010). Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable. (New York, NY: Bloomberg Press, 182 p.). Bloomberg columnist. Subprime mortgage loans --United States; Credit --United States; Financial crises --United States; Mortgage banks --United States. Origins of sub-prime debt crisis - ‘a silent conspiracy of the well rewarded‘ in banking, real estate, trading, insurance, investing, politics, regulation, credit rating, law, economic theory; how Wall Street's tolerance for extremes made global credit crunch foreseeable, inevitable; what went wrong, what lessons need to be learned from crisis.

Gary B. Gorton (2010). Slapped by The Invisible Hand: The Panic of 2007. (New York : Oxford University Press: New York : Oxford University Press, 223 p.). Frederick Frank Class of 1954 Professor of Management and Finance (Yale School of Management). Banks and banking --United States --History --21st century; Financial crises --United States --History --21st century. August 2007 - wholesale panic: institutions, large financial firms "ran" on other financial firms, made system insolvent; how securitized-banking system, nexus of financial markets and instruments unknown to most people, stands at heart of financial crisis; similar to Panics of 1907 or of 1893, except: 1) most people had never heard of markets involved, 2) didn't know how they worked, 3) didn‘t know what their purposes were, 4) didn‘t know terms involved (subprime mortgage, asset-backed commercial paper conduit, structured investment vehicle, credit derivative, securitization, repo market); securitized banking system is real, allows institutional investors and firms to make enormous, short-term deposits; vulnerable to panic.

LOREM IPSUM DOLOR sit amet, consecteturMichael adipiscing W. elit,Hudson (2010). The Monster: How a Gang of Predatory Lenders and Wall set eiusmod temporStreet incidunt Bankers et labore Fleeced America--and Spawned a Global Crisis. (New York, NY: Times UT ENIM AD MINIMBooks, VEN 284IAM p.).16 Staff Writer at the Center for Public Integrity. Subprime mortgage loans -- United States; Predatory lending --United States; Mortgage-backed securities --United States; Investment banking --Corrupt practices --United States; Financial crises --United States; Global Financial Crisis, 2008-2009. Bottom-feeding fraud, top-down greed that fueled financial collapse; rise, fall of subprime mortgage business as seen through rise, fall of two corporate empires: Ameriquest and Lehman Brothers (did more than other institutions to create feeding frenzy, embolden mortgage pros to flood nation with high-risk, high-profit home loans); shadowy billionaire who created subprime industry out of ashes of 1980s S&L scandal; Wall

Street executives with insatiable desire for product; struggling home owners ensnared; lawyers and investigators who tried to expose fraud; politicians, bureaucrats who turned blind eye; salesmen who tell all about money they made, lies they told, deals they closed.

175 William M. Isaac with Philip C. Meyer (2010). Senseless Panic: How Washington Failed America. (Hoboken, NJ: Wiley, 190 p.). Chairman of LECG Global Financial Services, Former Chairman of the Federal Deposit Insurance Corporation (FDIC) during the banking and S&L crises of the 1980s. Savings and loan association failures --United States --History; Savings and Loan Bailout, 1989-1995; Global Financial Crisis, 2008-2009; Bank failures --United States -- History. What went wrong with nation's banking system; indictment of United States policy; early 1980s - prime interest rate at an astonishing 21.5%; led to a severe recession, unemployment reached nearly 11%; some 3,000 banks and thrifts failed (9 of Texas‘s 10 largest, Continental Illinois - 7th largest bank in the nation); conditions handled without creating panic; economy began longest peacetime expansion in history; what was different about 2008‘s

meltdown (failure of handful of institutions nearly shut down world‘s financial system); mistakes that led to panic of 2008 and 2009; conditions America faced in 2008; roadmap for avoiding similar shutdowns and panics in future.

Stephen D. King (2010). Losing Control: The Emerging Threats to Western Prosperity. (New Haven, CT: Yale University Press, 304 p.). Global Chief Economist at HSBC. Western countries --Economic conditions --21st century; Western countries --Economic policy; Developing countries --Economic policy. Future decades: major redistribution of wealth, power across globe; social, political consequences may alarm once prosperous nations, lead to greater instability and income inequality, risk of a major dollar decline: 1) U.S. and European consumers forced to live within their means; 2) rising power of emerging markets (fueled property bubble in West), 3) poor internal regulation (new trade patterns, West more dependent

on risky financial services), 4) increasingly anachronistic system of global governance.

Ed. Robert W. Kolb (2010). Lessons from the Financial Crisis: Causes, Consequences, and Our Economic Future. (Hoboken, NJ: Wiley, 667 p.). Professor of Finance, Frank W. Considine Chair of Applied Ethics School of Business (Loyola University Chicago). Financial crises; Global Financial Crisis, 2008-2009; Financial crises --United States. Institutional LOREM IPSUMproblems revealed;DOLOR role of borrowers, especially subprime borrowers, in fomenting crisis; failures of modern risk analysis and management; how essential disciplines can be improved; sit amet, consectetursecuritization adipiscing elit, process: how new way of originating mortgages affected mortgage market, set eiusmod temporbroader incidunt financial et labore crisis; regulatory, systemic, other solutions to avert future problems; possible UT ENIM AD MINIMcauses VEN ofIAM crisis, 16 its emerging consequences for economy and lives of people; how Federal Reserve actions to avert disaster may lay foundation for more financial problems; international dimensions: role of regulation, its absence, failure of regulators to enforce existing rules.

Michael Lewis (2010). The Big Short: Inside the Doomsday Machine. (New York, NY: Norton, 288 p.). Financial crises -- history; United States -- Economic conditions -- 2008. How American economy went into freefall: 1) easy money, 2) greatly expanded home ownership, 3) shareholder demand for profit forced investment executives to use toxic derivatives.

176 Christian Marazzi; Translated by Kristina Lebedeva (2010). The Violence of Financial Capitalism. (Cambridge, MA: Semiotext(e), Distributed by MIT Press, 112 p.). Professor and Director of Socio-Economic Research (Scuola Universitaria della Svizzera Italiana). Financial crises. Financialization in the context of postfordist cognitive capitalism: new type of accumulation adapted to processes of social and cognitive production today, not simply irregularities between traditional categories of wages, rent, and profit; crisis 2008 - fundamental component of contemporary accumulation, not classic lack of economic growth; individual debt, management of financial markets are techniques for governing transformations of immaterial labor, general intellect, social cooperation; financial crisis radically undermined concept of unilateral, multilateral economico-political hegemony; efforts toward new geo- monetary order that have emerged around globe in response.

Bethany McLean and Joe Nocera (2010). All the Devils Are Here: The Hidden History of the Financial Crisis. (New York, NY: Portfolio Penguin, 400 p.). Writer for Vanity Fair; Business Columnist for The New York Times. Global Financial Crisis, 2008-2009; Financial crises -- United States --History --21st century; Mortgage-backed securities --United States; Subprime mortgage loans --United States. How Wall Street, mortgage industry, government conspired to change way Americans bought their homes; who changed game and why (basic human psychology-from poorest Florida home buyer to richest CEO).

Henry M. Paulson, Jr. (2010). On the Brink: Inside the Race to Stop the Collapse of the Global Financial System. (New York, NY: Business Plus, 496 p.). Former CEO of Goldman Sachs, Former Secretary of the Treasury. Paulson, Henry M.; Financial crises--History. Key decisions that had to be made, people and politics during world's impending financial Armageddon. LOREM IPSUM DOLOR sit amet, consectetur adipiscing elit, set eiusmod tempor incidunt et labore

UT ENIM AD MINIM VENIAM 16

Steven Rattner (2010). Overhaul: An Insider's Account of the Obama Administration's Emergency Rescue of the Auto Industry. (New York, NY: Houghton Mifflin Harcourt, 336 p.). Former Reporter (New York Times), Investment Banker, Head of Federal Government's Automotive Intervention Team Automobile industry and trade --Government policy --United States; Bankruptcy --Government policy --United States; Industrial policy --United States; United States --Economic policy --2009-. Intense 150-day struggle to save American auto industry; political brinkmanship, corporate mismanagement, personalities under pressure in high-stakes clash between Washington and Detroit; tough choices made, work against ticking

clock, vocal opposition from free market champions, to keep Chrysler and General Motors alive.

177 Stephen J. Rose (2010). Rebound: Why America Will Emerge Stronger from the Financial Crisis. (New York, NY: St. Martin‘s Press, 240 p.). Labor Economist and Former Senior Advisor to Secretary of Labor . Economic forecasting --United States; Financial crises --United States; United States --Economic conditions --2009-. How economy will return to high growth rates; America‘s economic performance data over last 30 years debunks myths about declining middle class incomes, burger-flipping jobs, global competition; evolution of financial crisis, mortgage lending implosion under rubric of ―brilliant idiocy‖; how investors, financial firms, regulators made devastating mistakes in pursuit of quick gains; financial

regulation, forthcoming investments in education, health care, energy - quick. healthy dividends.

Nouriel Roubini and Stephen Mihm (2010). Crisis Economics: A Crash Course in the Future of Finance. (New York, NY: Penguin Press, 368 p.). Professor of Economics at Stern School of Business (New York University); Associate Professor of History (University of Georgia). Financial crises; Business cycles; Economics. Methods used to foretell current crisis; financial cataclysms: old, ubiquitous (Mexico, Thailand, Brazil, Pakistan, Argentina); how to recognize, grapple with inherent instability of global financial system, understand pressure points, learn from previous episodes of "irrational exuberance," pinpoint course of global contagion, plan for immediate future; how world's economy can get out, stay out of mess.

David Smith (2010). The Age of Instability: The Global Financial Crisis and What Comes Next. (London, UK: Profile Books, 288 p.). Economics Editor (Sunday Times). Financial crises -- history. Political, economic factors that contributed to fall of Lehman, collapse of Iceland, disintegration of subprime mortgage market, emergence of culture of risk, greed.

LOREM IPSUM DOLOR sit amet, consectetur adipiscing elit, set eiusmod tempor incidunt et labore UT ENIM AD MINIM VENIAM 16 Joseph E. Stiglitz (2010). Freefall: America, Free Markets, and the Sinking of the World Economy. (New York, NY: Norton, 361 p.). 2001 Nobel Memorial Prize for Economics, Former Chairman of Council of Economic Advisers,. Financial crises --United States; Finance -- Government policy --United States; Global Financial Crisis, 2008-2009; United States -- Economic policy --1981-2001; United States --Economic policy --2001-2009. How America exported bad economics, bad policies, bad behavior to rest of the world, cobbled together haphazard, ineffective response when markets seized; way forward: restore balance between markets and government, address inequalities of global financial system, demand more good

ideas (less ideology) from economists.

178 Ed. Leila Simona Talani (2010). The Global Crash: Towards a New Global Financial Regime? (New York, NY: Palgrave Macmillan, 198 p.). Lecturer in European Studies (King's College London). Global Financial Crisis, 2008-2009; Banks and banking; Capitalism; International economic relations. Events leading to financial crisis, its institutional causes and consequences, its economic characteristics, its socio-political implications; established experts on financial markets from different academic disciplines, from different academic traditions debate future of global financial order; leading economists confront leading political scientists to assess future of global financial stability, to propose solutions to problems envisaged.

Eds. Steen Thomsen, Caspar Rose, Ole Risager (2010). Understanding the Financial Crisis: Investment, Risk and Governance. (New York, NY: Palgrave Macmillan, 229 p.). Director of the Centre for Corporate Governance (Copenhagen Business School); Professor, Department of International Economics and Management (Copenhagen Business School); Professor (Copenhagen Business School). Global Financial Crisis, 2008-2009. Why financial crisis happened; recommendations for building of new, sustainable financial system.

Vanity Fair, Graydon Carter (2010). The Great Hangover: 21 Tales of the New Recession from the Pages of Vanity Fair. (New York, NY: Harper Perennial, 480 p.). Economic crisis -- 2008; recessions --United States --History --21st century. 21 essays on global economic crisis by 15 respected contemporary business writers in America.

Ed. Robert E. Wright (2010). Bailouts: Public Money, Private Profit. (New York, NY: Columbia University Press, 147 p.). Nef Family Chair of Political Economy (Augustana College), Research economist at the National Bureau of Economic Research. Financial crises -- United States; Finance --Government policy --United States; Bank failures --United States; Intervention (Federal government) --United States; Corporate reorganizations --United States; Corporate turnarounds --United States. History of government bailouts (public money to save LOREM IPSUMprivate profit): DOLOR 1) colonial America's struggle to rectify first dangerous real estate bubble, British government's counterproductive response; 2) how allowed central banks, sit amet, consecteturother adipiscing lenders, elit, to bail out distressed but sound businesses without rewarding or encouraging risky set eiusmod tempor incidunt et labore ones; 3) how governments began to bail out distressed companies, industries, entire economies UT ENIM AD MINIMin ways VEN thatIAM 16subsidized risk takers, failed to reinvigorate economy; controlling risk in future.

Menzie D. Chinn and Jeffry A. Frieden (2011). Lost Decades: The Making of America's Debt Crisis and the Long Recovery. (New York, NY: Norton, 320 p.). Professor of Public Affairs and Economics Robert M. La Follette School of Public Affairs (University of Wisconsin, Madison); Professor of Government (Harvard University). Economic crisis - 2008; debt -- United States -- history. Massive inflow of foreign funds financed booms in housing prices, consumer spending, fueled economy until collapse of late 2008; political, economic roots of crisis, long-term effects; political strategies behind Bush administration's funding of massive deficits with foreign borrowing that fed crisis; continuing impact of huge debt in slow recovery.

179 Financial Crisis Inquiry Commission (2011). The Financial Crisis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States. (New York, NY: Knopf, 576 p.). ―The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire. The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble...When the housing and mortgage markets cratered, the lack of transparency, the extraordinary debt loads, the short-term loans and the risky assets all came home to roost. What resulted was panic. We had reaped what we had sown‖. 19 days of hearings, 700 witnesses. Conclusions: 1) credit crisis avoidable, widespread failures in government regulation, corporate mismanagement, unnecessary risk-taking, low- quality mortgage lending, excessive packaging/sale of loans, careless bets on risky securities; 2) Federal Reserve Board: chairman Alan Greenspan (advocated deregulation, presided over ―pivotal failure to stem the flow of toxic mortgages‖), chairman Bernanke; ―neglected its mission‖; 3) Bush administration: ―inconsistent response‖ - bailed out Bear Stearns, allowed Lehman Brothers to collapse ; ―added to the uncertainty and panic in the financial markets‖; 4) Democrats: shielded over-the-counter derivatives from regulation in 2000 - ―a key turning point in the march toward the financial crisis‖; 5) Federal Reserve Bank of New York: Timothy

Geitner (president) missed signs of trouble at Citigroup and Lehman; 6) 1999-2008: financial industry spent $2.7 billion on lobbying; individuals, industry-related committees, made more than $1 billion in campaign contributions; 7) lesser culprits: low interest rates after 2001 recession; Fannie Mae/Freddie Mac, government policy of ―aggressive homeownership goals‖ as part of ―philosophy of opportunity‖; 8) Securities and Exchange Commission: failed to require banks to strengthen capital positions (against potential losses), stop risky operating practices; 9) government agencies: Office of the Comptroller of the Currency (banks), Office of Thrift Supervision (S&Ls) blocked states from curbing abuses; 10) incompetence: Citigroup executives paid little attention to mortgage-related risks, A.I.G. executives paid no attention to $79 billion exposure to unhedged credit default swaps, Merrill Lynch executives surprised by sudden big losses on seemingly secure mortgage investments; 11) speculation: abetted by ―shadow banking system‖ - nation‘s 5 largest investment banks had only $1 in capital for about every $40 in assets to cover losses (3% drop in asset values could have wiped out firms); banks LOREM IPSUMhid excessive DOLOR leverage (derivatives, off-balance-sheet entities, other devices). sit amet, consectetur adipiscing elit, set eiusmod tempor incidunt et labore UT ENIM AD MINIM VENIAM 16 Robert W. Kolb (2011). The Financial Crisis of Our Time. (New York, NY: Oxford University Press, 368 p.). Professor of Finance and the Frank W. Considine Chair of Applied Ethics at the School of Business (Loyola University in Chicago). Financial crises --United States --History --20th century; Financial crises --United States --History --21st century. Housing industry in events that led to crisis: 1) 1990 - finance model of housing finance system (originate-to-distribute mortgage cycle) presented "clockwork of perverse incentives" to borrowers, mortgage brokers, appraisers, loan originators, securitizers, due diligence firms, rating agencies, investors, legislators, bureaucrats; ‗self-interest‘ response to legal, market incentives, 2) 2006 - housing industry entered crisis; 3) 2007 - falling residential real estate prices threatened world's largest, most respected financial institutions; 4) 2008 - serious problems, potential disaster, for real economy. 180

(Author) Credit Crisis: Related Books

Franklin Allen, Douglas Gale (2007). Understanding Financial Crises. (Oxford, UK: Oxford University Press, 303 p.). Nippon Life Professor of Finance and Professor of Economics at the Wharton School (University of Pennsylvania); Julius Silver Professor of Economics (New York University). Financial crises. History of financial crises, theoretical, empirical literature; theory of intermediation, asset markets, causes of asset price volatility, interaction of banks, markets.

Stefan Altorfer, Benedikt Koehler, Mark Duckenfield (2006). History of Financial Disasters 1763-1995. (London, UK: Pickering & Chatto, 1200 p.). Economic History Department (LSE).

Financial disasters; financial crises; economic history. Volume 1: 1763-1840s; Volume 2: 1850- 1925; Volume 3: 1929-1995.

Harold Bierman, Jr. (2010). Beating the Bear: Lessons from the 1929 Crash Applied to Today's World. (Santa Barbara, CA: Praeger, 206 p.). Nicholas H. Noyes Professor of Business Administration at Johnson Graduate School of Management (Cornell University). , 1929; Global Financial Crisis, 2008-2009; Bear markets -- History; Investments. Events could have been foreseen, avoided (just as in 1929); economic situations in United States before 1929 and 2008-2009 stock market crashes; causes of both financial crises; connection between explosion of sub-prime mortgage market, current state of economy, forecast future.

Richard Bitner (2008). Confessions of a Subprime Lender: An Insider's Tale of Greed, Fraud, and Ignorance. (Hoboken, NJ: Wiley, 186 p.). Former President of Kellner Mortgage Investments. Mortgage brokers -- United States; Mortgage loans -- United States. How subprime lending business lost control, pushed home prices to unsustainable levels, turned unqualified applicants into qualified borrowers through creative financing; recommendations to fix industry.

LOREM IPSUM DOLOR sit amet, consecteturBill adipiscingBonner elit,and Addison Wiggin (2005). The New Empire of Debt: The Rise and Fall of an set eiusmod temporEpic incidunt Financial et labore Crisis . (Hoboken, NJ: Wiley, 370 p.) President, CEO of Agora Inc.; Editorial UT ENIM AD MINIMDirector, VENIAM Publisher 16 of Daily Reckoning. Financial crises--United States; Debt--United States; United States--Economic conditions--2001-. Seismic shift in politics, economy of U.S.

Anton Brender, Florence Pisani; [translated into English by Francis Wells] (2010). Global Imbalances and the Collapse of Globalised Finance. (Brussels, Belgium: Centre for European Policy Studies, 179 p.). Chief economist of Dexia-Asset Management, Associate Professor at Paris-Dauphine University; Teaches at Paris-Dauphine University. Balance of payments; Global Financial Crisis, 2008-2009; International finance; International economic integration; Financial crises. Globalised finance at origin of Asian crisis, stock-market bubble, subprime crisis; savings generated in one place used in another; innovative ways in which capital circulated,

risks borne. 181 Theodore E. Burton (2009). Financial Crises and Periods of Industrial and Commercial Depression. (BN Publishing, 408 p. [orig. pub. 1902]). Former U.S. Congressman for 41 years; Recurring disturbances"; clarification of confusion surrounding economic phenomena (panics, crises, depressions); their causes, effects; are depressions unavoidable in transition periods in business, industry; periodicity of crises, depressions (regularly recur or result of chance).

Eds. Gerard Caprio, James A. Hanson, Robert E. Litan (2005). Financial Crises: Lessons from the Past, Preparation for the Future. (Washington, DC: Brookings Institution Press, 291 p.). Director of the Operations Policy Department in the World Bank's Financial Sector; Senior Adviser to the World Bank's Financial Sector Operations and Policy Department; Senior Fellow in Economic Studies at the Brookings Institution. Financial crises; International finance; Monetary policy; Economic policy. Lessons from attempts to recover from crises in past.

Darrell Duffie (2010). How Big Banks Fail and What To Do About It. (Princeton, NJ Princeton University Press 91 p.). Dean Witter Distinguished Professor of Finance at the Graduate School of Business (Stanford University) Bank failures; Bank failures --Prevention; Bank failures --United States; Financial crises. How dealer banks collapse, how to prevent need to bail them out; how solvency changes bank's relationships with customers, business partners; how key mechanisms in dealer bank's collapse derive from special institutional frameworks, regulations that influence flight of short-term secured creditors, hedge-fund clients, derivatives counterparties, loss of clearing and settlement services; why today's regulatory, institutional frameworks for mitigating large-bank failures don't address special risks to financial system posed by dealer banks; needed improvements in regulations, market institutions.

LOREM IPSUM DOLOR Barry Eichengreen (2002). Financial Crises: And What To Do about Them. (New York, NY: sit amet, consecteturOxford adipiscing Univers elit, ity Press, 194 p.). International finance; Financial crises--Developing countries; set eiusmod temporFinancial incidunt etcrises labore-- Prevention. Financial crises in emerging markets; best way make international UT ENIM AD MINIMfinancial VENIAM markets 16 more efficient and stable is by changing provisions of loan agreements to enhance the ability of creditors and debtors to resolve financial problems on their own.

Emily Eisenlohr (2010). Fairy Tale Capitalism: Fact And Fiction Behind Too Big To Fail. (Bloomington, IN: AuthorHouse, 272 p.). Former Banker, Former Senior Credit Officer (Moody's). Economic crisis -- 2008; credit crisis -- history; capitalism. Fictions surround financial meltdown: which political party is most responsible?, can regulators prevent another crisis?, how do credit ratings play hidden role?, can Congress tame systemic risk without shrinking big banks? how systemic risk remains.

182 Jochen Felsenheimer and Philip Gisdakis (2008). Credit Crises: From Tainted Loans to a Global Economic Meltdown. (Weinheim, Germany: Wiley-VCH, 277 p.). Head of Credit Strategy & Structured Credit Team (Unicredit); Senior Quantitative Credit Strategist (Unicredit). Financial crises; Banks and banking; Credit; Capital market. Mechanisms of financial market crisis: relevant players & strategies, principles of financial instruments involved: how bubbles emerge, burst, potential economic impact: why financial markets run into crises repeatedly; where do risks come from?; who are players?; which instruments involved; strategies which can drive crisis?; risks that were underestimated; transmission mechanisms onto other markets, real economy?; when is it over?; how to best weather storm?

Nicole Gelinas (2009). After the Fall: Saving Capitalism from Wall Street--and Washington. (New York, NY, Encounter Books, 227 p.). Senior Fellow, Manhattan Institute. Free enterprise -- United States; Capitalism -- United States; Financial crises -- United States -- History. How modern finance became immune to regulation of marketplace beginning in early 1980s; government policies, new financial instruments that escaped reasonable limits.

Ed. Benton E. Gup (2004). Too Big To Fail: Policies and Practices in Government Bailouts. (Westport, CT: Praeger, 359 p.). Robert Hunt Cochrane-Alabama Bankers Association Chair of Banking (University of Alabama College of Commerce). Business failures; Business failures -- United States; Bank failures; Bank failures --United States; Intervention (Federal government); Bankruptcy; Corporate reorganizations; Corporate turnarounds. Government bailouts - not new, nor limited to U.S.; academics, practitioners, regulators on implications, consequences.

Terence C. Halliday and Bruce G. Carruthers (2009). Bankrupt: Global Lawmaking and Systemic Financial Crisis. (Stanford, CA, Stanford University Press, 505 p.). Co-Director of the Center on Law and Globalization, American Bar Foundation (University of Illinois College of Law); Gerald F. and Marjorie G. Fitzgerald Professor of Economic History in the Department LOREM IPSUMof Sociology DOLOR (Northwestern University). Bankruptcy; Bankruptcy -- International cooperation; sit amet, consecteturFinancial adipiscing crises. elit, How global actors developed comprehensive norms for corporate bankruptcy set eiusmod temporlaws; incidunt how et national labore policymakers responded, contested, negotiated domestic laws in context of UT ENIM AD MINIMglobal VEN pressures;IAM 16 why global/local tensions produce implementation gaps.

Philip T. Hoffman, Gilles Postel-Vinay and Jean-Laurent Rosenthal (2007). Surviving Large Losses: Financial Crises, the Middle Class, and the Development of Capital Markets. (Boston, MA: Harvard University Press, 272 p.). Richard and Barbara Rosenberg Professor of History and Social Science (California Institute of Technology); Director of Studies (École des Hautes Études en Sciences Sociales); Professor of Economics (California Institute of Technology). Financial crises; Middle class; Capital market; Economic policy. Why financial crises occur, effects last so long; conditions to help countries survive, prosper in aftermath.

183 Edited by Martijn Konings (2010). The Great Credit Crash. (New York. NY: Verso, 398 p.). Researcher in the Amsterdam Institute for Metropolitan and International Development Studies (University of Amsterdam, The Netherlands). Global Financial Crisis, 2008-2009; International finance. Economic crisis - product of social order built during triumphalist years of neoliberal capitalism; current events, political responses; understanding crisis beyond subprime headlines.

Vinay B. Kothari (2010). Executive Greed: Examining Business Failures that Contributed to the Economic Crisis. (New York, NY Palgrave Macmillan 183 p.). Regents' Professor Emeritus in the College of Business (Stephen F. Austin State University). Industrial management; Leadership; Business ethics. Contribution of CEOs, top lieutenants to business success and failure; why, how corporate managers led their organizations toward disasters; destructive collaboration within organizations, across industry, between business and government.

John Lanchester (2010). I.O.U.: Why Everyone Owes Everyone and No One Can Pay. (New York, NY: Simon & Schuster, 272 p.). British journalist. Global financial crisis, 2008-2009; Economic history --21st century; International finance. How complete, devastating financial implosion happened; how decisions, actions of select group of individuals had profound consequences for America, Europe, global economy; proliferation of cheap credit led to explosion of lending; invention, widespread misuse of financial instruments, culpability of subprime mortgages; -- limitations of financial, governmental regulation, capitalism's deepest flaw, facts of human nature where cash is concerned.

Philippe Legrain 2010). Aftershock: Reshaping the World Economy After the Crisis. (London, UK: Little, Brown, 448 p.). 2010. Visiting Fellow at the London School of Economics' European Institute. Global Financial Crisis, 2008-2009; Financial crises --History --21st century; LOREM CapitalIPSUM market DOLOR --History --21st century. What went wrong, how world's leaders and financial institutions can learn from disastrous mistakes; how world economy is being reshaped, what it sit amet, consectetur adipiscing elit, means for jobs, future prospects. set eiusmod tempor incidunt et labore UT ENIM AD MINIM VENIAM 16

Matthew Lynn (2010). Bust: Greece, the Euro and the Sovereign Debt Crisis. (Hoboken, NJ: Bloomberg Press, 288 p.). Bloomberg Columnist. Financial crises --Greece --History --21st century; Debts, External --Greece --History --21st century; Greece --Economic policy --1974-; Economic stabilization --Greece --History --21st century; Greece --Economic conditions --1974-. Greece's spectacular rise and fall from grace, global repercussions of its financial disaster; origins, how it escalated, government deceit, unfettered spending, cheap borrow; implications for a fragile global economy; how Greek contagion spread throughout Europe; how government ineptitude, financial speculators compounded the problem.

184 Perry Mehrling (2010). The New Lombard Street: How the Fed Became the Dealer of Last Resort. (Princeton, NJ: Princeton University Press, 184 p.). Professor of Economics (Barnard College, Columbia University). Federal Reserve banks --History; Banks and banking, Central -- United States --History; Monetary policy --United States; Finance --United States; United States --Economic policy. Evolution of ideas, institutions in American banking system since Federal Reserve created in 1913; how Fed took classic central banking wisdom from Britain and Europe, adapted it to America's more volatile financial conditions; increasingly served as dealer of last resort to ensure liquidity of securities markets; argument for return to classic central bankers' "money view" (money market to assess risk and restore faith in financial system).

Lawrence E. Mitchell (2007). The Speculation Economy: How Finance Triumphed Over Industry. (San Francisco, CA Berrett-Koehler 395 p.). Theodore Rinehart Professor of Business Law (The University). Industries --United States; Corporations --United States; Finance --United States; Speculation --United States; United States --Economic policy. Roots of one of most critical flaws in modern American capitalism; first decade of 20th century - stock market became driver of American economy as result of birth of giant modern corporation; 1920s - stock market left behind business origins, became reason for creation of business; legal, financial, economic, social transformations that allowed financiers to collect companies, combine them into huge corporations for main purpose of manufacturing stock, dumping it on market; made more money from legal, financial manipulation than from practical business improvements (innovations in technology, management, distribution, marketing); how and why attitudes shifted;

Americans changed from cautious bond buyers to eager stock speculators; how federal government, wedded to outdated economic model, struggled to expand its own power, failed to regulate finance, missed chance to control corporations; finance came to dominate industry, stock ownership spread widely through society, stock market came to dominate finance.

Charles R. Morris (1999). Money, Greed, and Risk: Why Financial Crises and Crashes Happen. (New York, NY: Times Business, 297 p.). Financial crises -- United States -- History; LOREM StockIPSUM exchanges DOLOR -- United States -- History; International finance. Financial sector is the economy's plumbing system; permits specialization and investment; collapse of the Bank of the sit amet, consecteturUnited adipiscing States elit, in the 1830s to savings and loan crisis of the 1980s; brilliant innovation to gross set eiusmod temporexcess, incidunt inevitable et labore crash; technological, economic, demographic, industrial experiences that UT ENIM AD MINIMkicked VEN nation‘sIAM 16 financial engine into high gear in the 1980s and 1990s.

Anastasia Nesvetailova (2007). Fragile Finance: Debt, Speculation and Crisis in the Age of Global Credit. (New York, NY: Palgrave Macmillan, 256 p.). Lecturer in Global Political Economy at the Department of International Relations and Politics (The University of Sussex). Minsky, Hyman P.; Financial crises; International economic relations. Why global financial system, in era of global credit, is unstable, prone to crisis; role of financial innovation, over- borrowing, progressive illiquidity of financial structures in events that defined global financial system during past decade, implications for emerging paradigm of global financial architecture.

185 Anastasia Nesvetailova (2010). Financial Alchemy in Crisis: The Great Liquidity IIlusion. (London, UK: Pluto Press 204 p.). International Politics Staff (City University, London). Bank liquidity; Credit control; Financial crises. ‗Liquidity‘ in global financial crisis of 2007-2009.

Michael Perino (2010). The Hellhound of Wall Street: How Ferdinand Pecora’s Investigation of the Great Crash Forever Changed American Finance. (New York, NY: Penguin, 352 p.). Dean George W. Matheson Professor of Law at St. John's University School of Law. Pecora, Ferdinand, 1882-; Stock Market Crash, 1929; Stock exchanges --United States -- History --20th century; Financial crises --United States --History --20th century. 1933 - Ferdinand Pecora, Sicilian immigrant, former New York prosecutor, Chief Counsel to the United States Senate Committee on Banking and Currency, put Wall Street on trial for Great Crash of 1929; cross-examined officers of National City Bank (Citigroup), particularly Charles Mitchell, Chairman; revealed that City Bank had sold worthless bonds to American public, manipulated stock price, paid excessive compensation and bonuses to its executives; spurred Congress to to

rein in freewheeling banking industry; led directly to New Deal‘s landmark economic reforms.

Alex J. Pollock (2010). Boom and Bust: Financial Cycles and Human Prosperity. (Washington, DC: AEI Press, 100 p.). Resident Scholar (American Enterprise Institute), Former CEO of the Federal Home Loan Bank of Chicago (1991-2004). Financial crises --United States -- History; Finance --United States --History; Business cycles --United States --History; United States --Economic policy --History. Inevitability of booms and busts; human nature, innovation.

LOREM IPSUM DOLOR sit amet, consectetur adipiscing elit, set eiusmod tempor incidunt et labore Raghuram G. Rajan (2010). Fault Lines: How Hidden Fractures Still Threaten the World UT ENIM AD MINIM VENIAM 16 Economy. (Princeton, NJ: Princeton University Press, 260 p.). Eric J. Gleacher Distinguished Service Professor of Finance at Booth School of Business (University of Chicago). Income distribution --United States --History --21st century; Global Financial Crisis, 2008-2009; Economic history --21st century; United States --Social conditions --21st century. How bankers, government officials, ordinary homeowners collectively brought economic meltdown; skewed incentives of financial sector, unstable link between over-stimulated America, under-consuming world; how unequal access to education, health care in U.S. encouraged easy credit, kept job creation strong, put everyone in deeper financial peril; economic choices of countries (Germany,

Japan, China) placed political pressure on America to amend policies; hard choices needed to make to ensure more stable world economy, restore lasting prosperity.

186 Donald Rapp (2009). Bubbles, Booms and Busts: The Rise and Fall of Financial Assets. (New York, NY: Copernicus Books, 274 p.). Research Professor, Viterbi School of Engineering (USC). Business cycles --History; Financial crises --History. Nature, history of booms, bubbles busts in financial markets; how they emerge, develop, collapse; distribution of wealth, inflation; rationality of bankers, monetary and fiscal policy, role of central banks, tax policies, social security, US federal, state, municipal personal debt, valuation of common stocks; historical boom/bust cycles; U.S. Government‘s cure for excessive spending, inadequate revenues.

Jack Rasmus (2010). Epic Recession: Prelude to Global Depression. (London, UK: Pluto Press, 272 p.). Professor of Economics (St. Mary's College and Santa Clara University). Economic conditions - 2000-2008; Recession -- 2010. Origins, future direction of current economic crisis; relationships between banking system's breakdown, economy in general; how recession is highly resistant to traditional fiscal, monetary policy solutions, requires major structural changes in economy to check, contain; origins, causes of Epic Recession: roots in corporate, government policies, fundamental structural changes in U.S. capitalist economy since early 1980s; how current economic crisis is similar to, different from, Great Depression of 1929- 1934, post-1945 recessions in U.S.; two dominant forms of Epic Recessions.

Robert B. Reich (2010). Aftershock: The Next Economy and America’s Future. (New York, NY: Knopf, 174 p.). Chancellor‘s Professor of Public Policy at the Richard and Rhoda Goldman School of Public Policy (University of California, Berkeley). United States --Economic conditions --2009-; United States --Economic conditions --2001-2009; United States --Social conditions --21st century --Forecasting. Structural problem: increasing concentration of income and wealth at the top, middle class deeply in debt to maintain a decent standard of living (1928 - last time when wealth was so highly concentrated - top 1% of the population was paid 23% of the nation‘s income); how the middle class lacks purchasing power to buy what the economy can produce, coping mechanisms have a negative impact on their quality of life; how the rich LOREM IPSUMuse their increasing DOLOR wealth to speculate; how politics gets angrier (more Americans conclude sit amet, consecteturgame adipiscing is rigged elit, for the benefit of a few); how to ensure that prosperity is widely shared. set eiusmod tempor incidunt et labore UT ENIM AD MINIM VENIAM 16

Robert Scheer with Christopher Scheer (2010). The Great American Stick-Up!: Greedy Bankers and the Politicians Who Love Them. (New York, NY: Nation Books, 304 p.). Former Foreign Correspondent (LA Times). Banks and banking --Corrupt practices --United States; Financial crises --United States. 1980s - captains of finance industry, lobbyists, political allies destroyed American regulatory system (functioning effectively since era of New Deal); roots of disaster - free-market propaganda of Reagan years, bipartisan deregulation of banking industry; Clinton financial clique, havoc it wrought; anatomy of American business, political class.

187 Hyun Song Shin (2010). Risk and Liquidity. (Oxford, UK: Oxford University Press, 192 p.). Hughes-Rogers Professor of Economics (Princeton University). Financial risk management; Financial institutions -- Management; Global Financial Crisis, 2008-2009. Paradox of global financial crisis - erupted in era when risk management was at core of management of most sophisticated financial institutions; severity of crisis: 1) financial development put marketable assets at heart of financial system; 2) increased sophistication of financial institutions that held, traded the assets; economics behind fluctuations in price of risk, boom-bust dynamics that follow; role played by market-to-market accounting rules, securitisation in amplifying crisis; lessons for financial architecture, financial regulation, monetary policy.

Andrew Sheng (2009). From Asian to Global Financial Crisis: An Asian Regulator’s View of Unfettered Finance in the 1990s and 2000s. (New York, NY: Cambridge University Press, 489 p.). Chief Adviser to the China Banking Regulatory Commission. Finance --Asia; Financial crises --Asia. How old mindsets, market fundamentalism, loose monetary policy, carry trade, lax supervision, greed, cronyism, financial engineering caused both Asian crisis of late 1990s, current global crisis of 2008-2009; how Japanese zero interest rate policy to fight deflation helped create carry trade that generated bubbles in Asia whose effects brought Asian economies down; global finance is so interlinked, interactive that current tools and institutional structure to deal with critical episodes are completely outdated; how current financial policies, regulation failed to deal with global bubble; recommendations on what must change.

David Smick (2008). The World Is Curved: Hidden Dangers to the Global Economy. (New York, NY: Portfolio, 272 p.). Johnson Smick International, Inc. International finance; Financial crises; Globalization --Economic aspects; International economic relations. How global liquidity crisis happened; why mortgage mess is symptom of potentially more devastating trouble; how bad could things really get in today‘s volatile economy? what can we do about it? why world desperately needs "big think" financial doctrine to guide today‘s dangerous ocean of money.

LOREM IPSUM DOLOR sit amet, consectetur adipiscing elit, set eiusmod tempor incidunt et labore UT ENIM AD MINIM VENIAM 16 Yves Smith (2010). ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism. (New York, NY: Palgrave Macmillan, 368 p.). Blogger (Naked Capitalism). Financial crises --United States --21st century; Economics --United States -- History; Neoclassical school of economics; Free enterprise --United States --History; United States --Economic conditions --21st century; United States --Economic policy. Economists, as policy-makers, put doctrine before hard evidence, ignored deteriorating conditions, rising dangers that led to meltdown; 25 years of misrepresentations, naive interpretations of economic conditions, rationalizations of bad outcomes, rejection of clear signs of growing instability.

188 (Year, Films Director)

Directed by Leslie Cockburn (2009). American Casino. (Table Rock Films, 89 min.). Mortgage crisis; Wall Street -- history. Effect of the mortgage crisis; how the Wall Street meltdown has affected the working class; how and why over $8 trillion of our money vanished into the American Casino (filmed over twelve months in 2008).

Directed by Charles Ferguson (2010). Inside Job. (Sony Pictures Classics, 120 min.). Economic conditions - 2000-2008; crisis -- 2007-2010. What brought about financial meltdown; first film to provide comprehensive analysis of global financial crisis of 2008 caused millions of people to LOREM IPSUMlose their jobs,DOLOR homes in worst recession since Great Depression, nearly resulted in global sit amet, consecteturfinancial adipiscing collapse; elit, rise of rogue industry which corrupted politics, regulation, academia.

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Produced by Paula Weinstein (2010). Too Big to Fail. (Baltimore/Spring Creek Pictures, min.). Financial Crisis - 2008; Wall Street. Dissection of 2008 financial crisis; power brokers who decided fate of world's economy as system teetered on collapse; how co-dependency between Washington, Wall Street nearly destroyed, then repaired crisis; Paulson as central focus. Based on book by Andrew Ross Sorkin (New York Times reporter); William Hurt to play

Treasury Secretary and Curtis Hanson to direct.

189

(Firm, Year, Wall Street Books Author)

(Bank of America), Rick Rothacker (2010). Banktown: The Rise and Struggles of Charlotte’s Big Banks. (Winston-Salem, NC: John F. Blair, 336 p.). Reporter (Charlotte Observer). Bank of America; Wachovia Corporation; Banks and banking --North Carolina --Charlotte; Financial crises --North Carolina --Charlotte. How financial crisis played out in Charlotte - bruised economy, pride of one of New South's brightest skylines; crisis in Charlotte's Bank of America and Wachovia; sleep-deprived bankers analyzed $50 billion deal in less than 24 hours, Wachovia customers realized their adjustable rate mortgages resulted in higher monthly payments.

(Bear Stearns), Bill Bamber (2008). Bear-Trap: The Fall of Bear Stearns and the Panic of 2008. (New York, NY: Brick Tower Press,, 350 p.). Former Senior Managing Director at Bear Stearns. Bear Stearns; Wall Street (New York, N.Y.)--history; Brokers -- United States. Tragic story of fortunes made, lost; what happened inside Bear's offices, on trading floor that led to most sensational financial crisis of our times.

(Bear Stearns), William D. Cohan (2009). House of Cards: A Tale of Hubris and Wretched Excess on Wall Street. (New York, NY: Doubleday, 480 p.). Former Senior Wall Street Investment Banker. Bear, Stearns & Co.; Investment banking --United States; Bank failures -- United States; Financial crises --United States. March 2008 - fall of Bear Stearns, end of Second Gilded Age on Wall Street, period of greed, arrogance, stupidity in financial world; how risky bets, corporate political infighting, lax government regulations, bad decision-making wrought havoc on world financial system; deadly combination of greed, inattention - why company‘s leaders ignored danger in huge positions in mortgage-backed securities. LOREM IPSUM DOLOR sit amet, consectetur(Bear adipiscing Stearns), elit, Kate Kelly (2009). Street Fighters: The Last 72 Hours of Bear Stearns, the set eiusmod temporToughest incidunt etFirm labore on Wall Street. (New York, NY: Portfolio, 256 p.). Staff Reporter (The Wall UT ENIM AD MINIMStreet VEN Journal).IAM 16 Bear, Stearns & Co.; Investment banking --United States.; Bank failures -- United States; Financial crises --United States. Final 72 hours, in March 2008, as independent firm; as subprime mortgage crisis grew, firm‘s key executives descended into civil war.

(Bear Stearns), Alan C. Greenberg with Mark Singer (2010). The Rise and Fall of Bear Stearns. (New York, NY: Simon & Schuster, 213 p.). Former CEO and Chairman of the Board of Bear Stearns. Bear, Stearns & Co. --History --21st century; Investment banking --United States --21st century; Subprime mortgage loans --United States --21st century; Financial crises - -United States --21st century. Ascent to top of one of Wall Street‘s powerhouse institutions; joined Bear Stearns in 1949, head of firm in 1978; how collapse surprised him and other top

executives; whom he thinks was responsible; storied career and its stunning conclusion. 190 (Countrywide Financial), Adam Michaelson (2009). The Foreclosure of America: The Inside Story of the Rise and Fall of Countrywide Home Loans, the Mortgage Crisis, and the Default of the American Dream. (New York, NY: Berkley Books, 354 p.). Former Senior Vice President of Marketing, Countrywide Financial. Mortgages --United States; Mortgage loans --United States; Foreclosure --United States; Financial crises --United States. Morality of career spent marketing mirages; forces that destroyed company; can corporations serve public good, profit at same time?; how to prevent meltdown from ever happening again.

(Goldman Sachs), Suzanne McGee (2010). Chasing Goldman Sachs: How the Masters of the Universe Melted Wall Street Down-- and Why They’ll Take Us to the Brink Again. (New York, NY: Crown Publishers, 398 p.). Contributing Editor at Barron's. Goldman, Sachs & Co.; Investment banking --United States --History --21st century; Financial crises --United States -- History --21st century; Finance --United States --History --21st century. Why financial system almost failed, why it could happen again; forces that transformed Wall Street from traditional role as source of long-term capital into trading entity interested in short-term gains, reckless disregard for broader financial system; where banking stands, where it needs to go.

(Lehman Brothers), Peter Chapman (2010). The Last of the Imperious Rich: Lehman Brothers, 1844-2008. (New York, NY: Portfolio, 320 p.). Writer, Editor for the Financial Times. Lehman Brothers --History; Stockbrokers --United States; Investment banking --New York (State) --New York --History; Finance --New York (State) --New York --History; Bankruptcy --United States; Business failures --United States. How one of largest, most respected firms in world failed; history from cotton-brokering general store run by family of LOREM IPSUMGerman immigrants DOLOR in Montgomery, AL, to dramatic collapse; from Henry Lehman to Bobbie Lehman (radio, motion pictures, air travel in 1920s) to Dick Fuld, in final days; what caused sit amet, consecteturLehman adipiscing to fail. elit, set eiusmod tempor incidunt et labore UT ENIM AD MINIM VENIAM 16

(Lehman Brothers), Michael P. Malloy (2010). Anatomy of a Meltdown: A Dual Financial Biography of the Subprime Mortgage Meltdown. (New York, NY: Wolters Kluwer Law & Business, 281 p.). Professor of Law, McGeorge School of Law (University of the Pacific). Lehman Brothers (1993-2008) --Trials, litigation, etc.; Washington Mutual, Inc. --Trials, litigation, etc.; Banking law --United States; Global Financial Crisis, 2008-2009. Lehman Brothers and WaMu on path to financial ruin; steps to restore financial markets, measures to avoid similar crises; law, policy, practical issues raised by crisis, government response.

191 (Lehman Brothers), Lawrence G. McDonald with Patrick Robinson (2009). A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers. (New York, NY: Crown Business, 368 p.). Managing Director of Pangea Capital Management LP (former vice president of distressed debt and convertible securities trading at Lehman Brothers). Lehman Brothers (1993- ) --History; Global Financial Crisis, 2008-2009; Financial crises --United States. Culture, unspoken rules of game; reckless addiction to growth demolished nation‘s oldest investment bank; ruthless place - brilliance, arrogance, ambition, greed, capacity for relentless toil, other human traits sometimes fueled prosperity, occasionally destroyed it.

(Lehman Brothers), Joe Tibman (2009). The Murder of Lehman Brothers: An Insider’s Guide to the Global Meltdown. (New York, NY, Brick Tower Press, 245 p.). Former Senior Banker at Lehman Brothers.Lehman Brothers (1993- ) --History; Global Financial Crisis, 2008- 2009; Financial crises --United States. People, forces responsible for demise of Lehman; feud between investment bankers and sales/traders soon after death of last Lehman family CEO; rise of Dick Fuld, from junior trader to CEO; how handful of people crushed firm with help of misguided, inept politicians, dysfunctional, antiquated regulatory infrastructure.

(Lehman Brothers), Vicky Ward (2010). The Devil’s Casino: Friendship, Betrayal, and the High-Stakes Games Played Inside Lehman Brothers. (Hoboken, NJ: Wiley, 296 p.). Contributing Editor to Vanity Fair. Lehman Brothers; Investment banking --New York (State) -- New York --History; Investment advisors --New York (State) --New York --History; Finance -- New York (State) --New York --History. 1984 - Lehman acquired by by American Express, renamed Shearson/Lehman American Express; 1990 - Lehman Commercial Paper Inc. renamed Lehman; 1994 - became independent; September 15, 2008 - bankrupt; four best friends who rebuilt Lehman Brothers - Steve Lessing, Tom Tucker, Chris Pettit, Joe Gregory (all from Huntington, Long Island); poisonous culture - illicit affairs, treachery, séances, boardroom LOREM IPSUM DOLOR backstabbing, friendships and families torn apart; victim of men, women blinded by arrogance, sit amet, consectetumoney,r adipiscing power. elit, set eiusmod tempor incidunt et labore UT ENIM AD MINIM VENIAM 16

(Lehman Brothers), Mark T. Williams (2010). Uncontrolled Risk: Lessons of Lehman Brothers and How Systemic Risk Can Still Bring Down the World Financial System. (New York, NY: McGraw-Hill, 256 p.). Finance and Economics Faculty (Boston University). Lehman Brothers -- bankruptcy; economic conditions - 2000-2008. How uncontrolled risk toppled a 158- year-old institution; worst-case scenario of smart decisions, stupid mistakes, ignored warnings, important lessons in money, power, policy: what it says about Wall Street, Washington, world financial system; did CEO Dick Fuld deserve inquisition?' can broken investment-banking money machine be fixed?; lessons from key drivers of financial meltdown; is Washington also to blame

for wild risk taking?; can meaningful reform avert another financial catastrophe?

192 (Merrill Lynch), Greg Farrell (2010). Crash of the Titans: How the Decline and Fall of Merrill Lynch Crippled Bank of America and Nearly Destroyed America's Financial System. (New York, NY: Crown Business, 320 p.). Journalist (Financial Times). Merrill Lynch; Bank of America; financial crises - 2008. Worldwide financial collapse told through lens of merger between Bank of America and Merrill Lynch; focus on Ken Lewis and John Thain; critical look at the two companies' boards of directors, "bonus culture" of Wall Street , risks embedded in any company run by all-powerful CEO.

(J. P. Morgan Chase & Co.), Gillan Tett (2009). Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe. (New York, NY: Free Press, 304 p.). Journalist (Financial Times). J.P. Morgan & Co.; Credit derivatives --United States --History; Housing --United States --Finance; Financial crises -- United States. "Shadow banking" world; how Morgan team's ideas in 1994 for new kind of financial alchemy helped to ignite revolution in banking; escalated wildly out of control; created credit derivatives; catapulted Morgan to top of derivatives trade, fueled extraordinary banking boom beyond limits of acceptable risk; how Morgan leaders escaped carnage; how possible for banking world, regulators, rating agencies to have spotted, heeded risks of meltdown.

(Northern Rock), Alex Brummer (2008). The Crunch: The Scandal of Northern Rock and the Escalating Credit Crisis. (London, UK: Random House Business, 244 p.). City Editor (Daily Mail). Financial crises; Bank failures; Bankers -- Malpractice; Monetary policy; International finance. Crisis from origins in US 'subprime' market to explosion on to international scene; greed, mismanagement, dithering; bankers sought quick buck, regulators engaged in turf wars and blame-avoidance, government paralyzed by scale of problem - conspired to almost bring banking system down; victims: 1.5 million people in US thrown out of their houses, entire population of UK co-opted to guarantee Northern Rock with 30 billion LOREM IPSUM DOLOR pounds of public money, borrowers everywhere finding credit more expensive, harder to get. sit amet, consectetur adipiscing elit, set eiusmod tempor incidunt et labore

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(Paulson & Co.), Greg Zuckerman (2009). The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History. (New York, NY: Broadway Business, 304 p.). Reporter (Wall Street Journal). Pulson, John; Paulson & Co., Inc.; housing market--history. How contrarian foresaw an escalating financial crisis; 2006 - John Paulson, hedge fund manager, realized housing market, subprime mortgages were grossly overvalued; Paulson, Jeffrey Greene, Michael Burry bet heavily against risky mortgages; initially lost tens of millions; doubled up; summer of 2007 - markets weakened, Paulson made early profits; year-end 2007 - earned more than $15 billion (greatest trade in financial history).

193 (Author) Wall Street: Related Books

Eds. Viral V. Acharya, Thomas F. Cooley, Matthew P. Richardson, Ingo Walter, New York University Stern School of Business; foreword by Myron Scholes (2010). Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance. (Hoboken, NJ: Wiley, 573 p.). Professor of Finance; Paganelli-Bull Professor of Economics; Charles E. Simon Professor of Applied Financial Economics; Seymour Milstein Professor of Finance, Corporate Governance and Ethics (all on faculty of New York University Stern School of Business). Financial institutions --Government policy --United States; Banks and banking --State supervision --United States; Financial crises --United States; International finance --Law and legislation; United States --Economic policy --2009-. Dodd-Frank Act improved financial regulation, fell far short of what could have been achieved; impact on U.S., global firms, market, economy (most significant changes since 1930s); strengths, weaknesses of Act; whether regulations will promote growth, prevent another near collapse, contribute to failure.

Anonymous; [introduction by] Keith Gessen (2010). Diary of a Very Bad Year: Confessions of an Anonymous Hedge Fund Manager. (New York, NY: Harper Perennial, 272 p.). Co- Editor-in-Chief of n+1. Hedge funds --Management; Subprime mortgage loans; Global Financial Crisis, 2008-2009. Candid, captivating account of economic crisis, from an anonymous hedge fund manager; two years of interviews with despairing anonymous hedge LOREM IPSUMfund manager; DOLOR stories behind death of Bear Stearns, collapse of Lehman Brothers, plunging dollar, bailouts, Madoff scandal, upswing; stress - took semi-sabbatical. sit amet, consectetur adipiscing elit, set eiusmod tempor incidunt et labore

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Richard Bookstaber (2007). A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation. (Hoboken, NJ: Wiley, 276 p.). Manager of FrontPoint Partners, Former Managing Director for Risk Management at Salomon Brothers, Member of Salomon's Risk Management Committee. Hedge funds; Risk management. Liquidity begets greater leverage; innovation creates greater complexity; structure demands nonhuman level of rationality; twofold solution: 1) reduce complexity, 2) break tight coupling of transactions.

194 Satyajit Das (2006). Traders, Guns and Money: Knowns and Unknowns in the Dazzling World of Derivatives. (New York, NY: Financial Times Prentice Hall, 352 p.). Derivative securities. Culture, games, deceptions played out every day in trading rooms around the world.

David Faber (2009). And Then the Roof Caved In: How Wall Street's Greed and Stupidity Brought Capitalism to Its Knees. (Hoboken, NJ: Wiley, 192 p.). CNBC. Real estate investment --United States; Financial crises --United States; Foreclosure --United States; Mortgage loans --United States. Events that planted seeds for worst economic crisis since Great Depression (starting in 2001, when Federal Reserve reduced interest rates to all time low in unprecedented effort to help economy recover from attacks of 9/11); regulators who tried to stop problem; hedge fund managers who foresaw coming housing crash, profited from it.

Michael Hirsh (2010). Capital Offense: How Washington’s Wise Men Turned America’s Future Over to Wall Street. (Hoboken, NJ: Wiley, 352 p.). National Economics Correspondent (Newsweek). Global Financial Crisis, 2008-2009; Finance --Government policy --United States; United States --Economic policy --2009-; United States --Politics and government --2009-. Three decades of fiscal, regulatory, financial recklessness; why Clinton administration failed to heed warning of Asian financial crisis of 1998; why then Treasury Secretary Rubin dismissed warning about dangers of derivatives; lives of key people of era of free-market finance: Milton Friedman - creator, earliest promoter; influence on Reagan administration; top White House advisors, administration officials; key figures, lively clashes; why President Obama took so long to work on economy, why his policies, may not be enough to sustain long-term recovery.

Simon Johnson and James Kwak (2010). 13 Bankers: The Wall Street Takeover and the LOREM IPSUMNext Financial DOLOR Meltdown . (New York, NY: Pantheon Books, 320 p.). Former Chief Economist sit amet, consecteturof the adipiscing International elit, Monetary Fund, Ronald A. Kurtz Professor of Entrepreneurship at Sloan set eiusmod temporSchool incidunt of etManagement labore (MIT); Former Consultant for McKinsey & Company and Software UT ENIM AD MINIMEntrepreneur. VENIAM 16 Banks and banking --United States; Bank failures --United States; Finance -- United States; Financial crises --United States. Recent U.S. financial history within context of previous showdowns between American democracy and Big Finance (from to Andrew Jackson, from Theodore Roosevelt to Franklin Delano Roosevelt); why ideology of finance (finance is good, unregulated finance is better, unfettered finance run amok is best), Wall Street‘s political control of government policy pertaining to it imperil future; stark choice: whether Washington will accede to vested interests of unbridled financial sector that runs up profits in good years, dumps its losses on taxpayers in lean years, or reform, through stringent regulation, banking system as first, foremost an engine of economic growth; proposal: reconfigure megabanks to be ―small enough to fail.‖

195 Dave Kansas (2009). The Wall Street Journal Guide to the End of Wall Street as We Know It: What You Need to Know About the Greatest Financial Crisis of Our Time--and How to Survive It. (New York, NY: HarperCollins, 199 p.). Editor of Money & Investing section (The Wall Street Journal). Investments --United States; Stocks --United States; Finance --United States; Stock exchanges; Financial crises --United States. How we got here, what we need to know; what crisis means for readers' financial lives, steps to take to inform, protect themselves.

Roger Lowenstein (2010). The End of Wall Street. (New York, NY: Penguin Press, 336 p.). Former Reporter (Wall Street Journal). Financial crises --United States --History --21st century; Mortgages --Government policy --United States; Wall Street (New York, N.Y.) --History --21st century; United States --Economic policy --2001-2009. Liquidity and capital - origins of crisis, positions collapse of 2008 as greatest ever of Wall Street's unlearned lessons; financial, economic, sociological thriller that indicts America for succumbing to siren song of easy debt, speculative mortgages; profiles of Angelo Mozilo, Johnny Appleseed of subprime mortgages (spreads toxic loans across landscape like wild crabapples), damning explication of how rating agencies helped gift wrap faulty loans in guise of triple-A paper, takedown of academic formulas that proved ruin of investors and banks; searing profiles of banking CEOs, (ferretlike Dick Fuld of Lehman, bloodless Jamie Dimon of JP Morgan), government officials (restless, deal-obsessed Hank Paulson, overmatched Tim Geithner, cerebral academic Ben Bernanke - sought to avoid a repeat of one crisis he spent lifetime trying to understand-Great Depression).

LOREM IPSUM DOLOR Robert Sloan (2009). Don't Blame the Shorts: Why Short Sellers Are Always Blamed for sit amet, consectetuMarketr adipiscing Crashes elit, and How History Is Repeating Itself. (New York, NY, McGraw-Hill, 272 set eiusmod temporp.). incidunt Former et laboremanaging director, and the global head of prime brokerage and equity finance and a UT ENIM AD MINIMmember VEN IAMof both 16 the Securities Division Operating Committee and the Product Managers Committee of Credit Suisse First Boston. Short selling; speculation. Deep roots of conflict over speculative investing, its role in economy; vital systemic (and symbolic) role of short-selling: makes financial markets less opaque, more accountable, stronger; fuels financial system; shorting, and financing that goes with it, is at heart of every Wall Street transaction to make money flow through country's system; without shorting - no credit in markets where risk is highest: high yield, distressed, convertible bonds, equities; chokes economic activity; system of borrowing, payments that funds the economy halted after Lehman Brothers bankruptcy; SEC went after the shorts, passed rule that dried up liquidity and credit, launched worldwide financial collapse not been seen since 1930s; why so wrong? - American reaction to speculators.

196 Judith Stein (2010). Pivotal Decade: How the United States Traded Factories for Finance in the Seventies. (New Haven, CT: Yale University Press, 367 p.). Professor of History (City College and Graduate Center of the City University of New York). Keynesian economics; Financial institutions --United States; United States --Economic policy --1971-1981; United States --Politics and government --1969-1974; United States --Politics and government --1974- 1977; United States --Politics and government --1977-1981. 1970s, end of age of the factory - to understand current economic crisis; era of postwar liberalism, created by New Deal, whose practices, high wages, regulated capital produced robust economic growth, greater income equality; high oil prices, economic competition from Japan and Germany battered American economy, required new policies; war was waged against inflation, not against unemployment;

government promoted balanced budget instead of growth; beginning of age of finance, subsequent deregulation, free trade, low taxation, weak unions that has fostered inequality, now worst recession in sixty years.

Matt Taibbi (2010). Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America. (New York, NY: Spiegel & Grau, 272 p.). Contributing Editor for Rolling Stone magazine. Political corruption --United States; Deception --Political aspects -- United States; Despotism --United States; United States --Politics and government --2009-; United States --Politics and government --2001-2009. Movement‘s origins to cult of Ayn Rand, her most influentia, possibly weirdest, acolyte, Alan Greenspan; backroom deals that decided winners, losers in government bailouts; hidden commodities bubble that transferred billions of dollars to Wall Street while creating food shortages around world; how finance dominates politics (investment bankers auctioning off America‘s infrastructure to inside account of high- stakes battle for health-care reform); Goldman Sachs, ―vampire squid wrapped around the face of humanity.‖ LOREM IPSUM DOLOR sit amet, consectetur adipiscing elit, set eiusmod tempor incidunt et labore UT ENIM AD MINIM VENIAM 16 Pablo Triana (2009). Lecturing Birds on Flying: Can Mathematical Theories Destroy the Financial Markets? (Hoboken, NJ: Wiley, 350 p.). Finance; Economics. Indictment of trustworthiness of financial theory; how malfunctions in quantitative machines have wreaked havoc in real world; whether financial markets can be solved mathematically; origin of many prevalent theories, mathematical dictums; how field of financial economics evolved from descriptive to abstract discipline dedicated to technically concocting professors' own versions of how world should work; how Wall Street, other financial centers became eager employers of scientists, how scientists became eager employees of financial firms; most significant historical

episodes of theory.

197 Useful Articles (Source, Date, Author)

BBC

November 21, 2007 - ―The downturn in facts and figures‖ http://news.bbc.co.uk/2/hi/business/7073131.stm

Bloomberg Markets Magazine

1) February 1, 2008: "Peddling Tainted Debt to Florida" - David Evans http://www.bloomberg.com/apps/news?pid=nw&pname=mm_0208_story2.html 2) July 1, 2008: "The Risk Nightmare" - David Evans http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aCFGw7GYxY14 3) November 1, 2008: "Banks on the Edge" - David Evans www.bloomberg.sg/news/marketsmag/mm_1108_story1.html

Bloomberg BusinessWeek

September 11, 2006: ―Nightmare Mortgages‖ http://www.businessweek.com/magazine/content/06_37/b4000001.htm

Der Spiegel

July 8, 2009 - ―Global Banking Economist Warned of Coming Crisis‖ - Beat Balzli and Michaela Schiessl http://www.spiegel.de/international/business/0,1518,635051,00.htmlLOREM IPSUM DOLOR

sit amet, consectetur adipiscing elit, Economistset eiusmod tempor incidunt et labore UT ENIM AD MINIM VENIAM 16 1) July 17, 2009: ―Turmoil Among Macroeconomists‖ www-personal.umich.edu/~rudib/economist_1.pdf 2) July 17, 2009: ―Foundations of Financial Economics‖ www-personal.umich.edu/~rudib/economist_2.pdf 3) December 30, 2009 - Global House Prices (Ratio Rentals) http://www.economist.com/businessfinance/PrinterFriendly.cfm?st 4) July 8, 2010 - House Prices (Countries‘ House Price Data Over Time) http://www.economist.com/node/14438245?story_id=14438245

198 Federal Reserve Bank of Kansas City

August 4, 2008: ―The Panic of 2007‖ - Gary Gorton http://www.kc.frb.org/publicat/sympos/2008/Gorton.08.04.08.pdf

Financial Times

December 21, 2007: ―Man in the News: David Viniar‖ - Ben White http://us.ft.com/ftgateway/superpage.ft?news_id=fto122120071455069557

Futures Magazine

12/1/2010 - ―VaR: The Number That Killed Us‖ - Pablo Triana http://www.futuresmag.com/Issues/2010/December-2010/Pages/The-number-that-killed-us.aspx

Harvard Business Review

July/August 2009: ― 'The Descent of Finance‖ - Niall Ferguson http://hbr.org/2009/07/the-descent-of-finance/ar/1

Nation

August 3, 2009: ―Dismantling the Temple‖ - William Greider http://www.thenation.com/article/dismantling-temple

New YorkerLOREM IPSUM DOLOR sit amet, consectetur adipiscing elit, July 27,set eiusmod2009: ―Cocksure:tempor incidunt Banks, et labore Battles and the Psychology of Overconfidence‖ - Malcolm Gladwell http://UTwww.newyorker.com/reporting/2009/07/27/090727fa_fact_gladwell ENIM AD MINIM VENIAM 16

September 21, 2009: ―Eight Days: The Battle To Save the American Financial System‖ - James B. Stewart http://www.newyorker.com/reporting/2009/09/21/090921fa_fact_stewart

New York Magazine

June 15, 2008 - ―The Confidence Man: Hedge-fund manager David Einhorn believes his public attack on Lehman Brothers wasn‘t just about making money. So what was it about?‖ - Hugo Lindgren http://nymag.com/news/businessfinance/47844/

199 New York Times

1) September 2, 2009: ―How Did Economists Get It So Wrong?‖ - Paul Krugman http://www.nytimes.com/2009/09/06/magazine/06Economic- t.html?_r=1&scp=1&sq=How%20Did%20Economists%20Get%20It%20So%20Wrong?&st=cse 2) March 11, 2010: ―How Lehman Hid Its Woes‖ - Michael J. de la Merced, Andrew Ross Sorkin http://www.nytimes.com/2010/03/12/business/12lehman.html?dbk 3) August 26, 2010 - ―An Autopsy of Fannie Mae and Freddie Mac‖ - Binyamin Appelbaum http://economix.blogs.nytimes.com/2010/08/26/an-autopsy-of-fannie-mae-and-freddie-mac/

Time Magazine

―25 People To Blame for the Financial Crisis‖ http://www.time.com/time/specials/packages/article/0,28804,1877351_1877350,00.html

Vanity Fair

1) October 2008: ―Reversal of Fortune‖ - http://www.vanityfair.com/politics/features/2008/11/stiglitz200811 2) JanuaryLOREM 2009: ―CapitalistIPSUM DOLOR Fools‖ - Joseph Stiglitz http://www.vanityfair.com/magazine/2009/01/stiglitz200901 sit amet, consectetur adipiscing elit, 3) July 2009: ―Wall Street‘s Toxic Message‖ - Joseph Stiglitz http://www.vanityfair.com/politics/features/2009/07/thirdset eiusmod tempor incidunt et labore -world-debt200907 UT ENIM AD MINIM VENIAM 16 4) October 1, 2010: ―Beware of Greeks Bearing Bonds‖ - Michael Lewis http://www.vanityfair.com/business/features/2010/10/greeks-bearing-bonds-201010

Wall Street Journal

November 21, 2005: ―What's Behind the Boom‖ - James R. Hagerty http://online.wsj.com/public/article/SB113226292707000449- T6d8JrmM_UIvrTth0Bab0CCGUwo_20061120.html?mod=tff_main_tff_top

200 Useful Links & Graphics (Source, Date, Author)

Associated Press

AP Economic Stress Index http://hosted.ap.org/specials/interactives/_national/stress_index/

Bubblenomics: Consequences of asset inflation (boom) and deflation (bust) on economic activities.

Jean-Paul Rodrigue (Hofstra University) http://people.hofstra.edu/jean-paul_rodrigue/jpr_blogs.html

Business Insider

April 2010: History of The Bank Bailout - Brad DeLong (UC Berkeley) www.businessinsider.com/delong-presentation-on-history-of-bailout#-1

Congressional Oversight Panel Reports http://cop.senate.gov/reports/

Congressional Research Service LOREM IPSUM DOLOR September 21, 2007: ―Financial Crisis? The Liquidity Crunch of August 2007‖ http://assets.opencrs.com/rpts/RL34182_20070921.pdfsit amet, consectetur adipiscing elit, set eiusmod tempor incidunt et labore UT ENIM AD MINIM VENIAM 16 Council on Foreign Relations

Crisis Guide: The Global Economy http://www.cfr.org/publication/19710/global_economic_crisis.html

Federal Reserve Bank of Boston

October 1992: ―"Mortgage Lending in Boston: Interpreting HMDA Data‖ http://www.bos.frb.org/economic/wp/wp1992/wp92_7.htm

201 Federal Reserve Bank of Kansas City

―Has Financial Development Made the World Riskier‖ - Raghuram G. Rajan www.kansascityfed.org/publicat/sympos/2005/pdf/rajan2005.pdf

Federal Reserve Bank of New York

1) Timelines of Policy Responses to the Global Financial Crisis (Domestic/International) http://www.newyorkfed.org/research/global_economy/policyresponses.html 2) Forms of Federal Reserve Lending to Financial Institutions http://www.newyorkfed.org/markets/Forms_of_Fed_Lending.pdf

Federal Reserve Bank of St. Louis

1) Sept./Oct. 2008: ―The Credit Crunch of 2007-2008: A Discussion of the Background, Market Reactions, and Policy Response - Paul Mizen http://research.stlouisfed.org/publications/review/08/09/Mizen.pdf 2) The 2008 Financial Crisis: A Timeline of Events and Policy Actions http://timeline.stlouisfed.org

Flowing Data

27 Visualizations and Infographics To Understand the Financial Crisis http://flowingdata.com/2009/03/13/27-visualizations-and-infographics-to-understand-the-financial-crisis/

Glasshouse Forum LOREM IPSUM DOLOR ―Alphabet Soup: The Political Economy of the Great Recession‖ - Daniel W. Drezner http://docs.google.com/gview?a=v&q=cache:0FiwUvvnnkwJ:sit amet, consectetur adipiscing elit, www.glasshouseforum.org/pdf/GF_drezner_alphab etsoup.pdf+Alphabet+Soup:+The+Political+Economy+of+the+Great+Recessionset eiusmod tempor incidunt et labore &hl=en&gl=us UT ENIM AD MINIM VENIAM 16

IMF Direct (International Monetary Fund‘s Global Economy Forum)

1) ―Global Safety Nets: Crisis Prevention in an Age of Uncertainty‖ - Reza Moghadam (Director of the IMF‘s Strategy, Policy, and Review Department) http://blog-imfdirect.imf.org/2010/09/09/global-safety-nets-crisis-prevention-in-an-age-of-uncertainty/ 2) ―Number of Countries Under Financial Stress (1981-2009) http://imfdirect.files.wordpress.com/2010/09/moghadam090910d.jpg

202 Joint Center for Housing Studies (Harvard University)

February 2004: ―Hitting the Wall: Credit as an Impediment to Homeownership‖ www.jchs.harvard.edu/publications/finance/babc/babc_04-5.pdf

New York Times 1) September 16, 2008 - ―Primer on Financial Crisis‖ http://graphics8.nytimes.com/images/2008/09/16/business/16financialprimer.span1.jpg 2) October 11, 2008 - ―How This Bear Market Compares‖ http://www.nytimes.com/interactive/2008/10/11/business/20081011_BEAR_MARKETS.html 3) November 21, 2008 - ―Tracking the $700 Billion Bailout‖ - Matthew Erickson, Elaine He and Amy Schoenfeld http://www.nytimes.com/packages/html/national/200904_CREDITCRISIS/recipients.html 4) March 30, 2009 - ―The Big (Troubled) Three‖ (auto makers) http://www.nytimes.com/imagepages/2009/03/30/business/30auto.graf01.ready.html 5) May 1, 2010 - ―Europe's Web of Debt‖ http://www.nytimes.com/interactive/2010/05/02/weekinreview/02marsh.html?ref=weekinreview 6) September 29, 2010: ―Next Steps‖ - Jennifer Daniel, Peter Lattman, Thomas Kaplan, Michael J. de la Merced http://graphics8.nytimes.com/images/2010/09/29/business/dealbook-biggraphic/dealbook-biggraphic-custom1.gif 7) October 3, 2010: ―Rolling Up TARP, Though Cleanup Isn‘t Over‖ - Amy Schoenfeld http://www.nytimes.com/imagepages/2010/10/03/business/economy/03soapbox-graphic.html

Pro Publica

April 15, 2009: ―History of U.S. Gov‘t Bailouts‖ http://www.propublica.org/special/government-bailouts

U. S. Department of Housing and Urban Development

NovemberLOREM 1994: ―HomeownershipIPSUM DOLOR and Its Benefits‖ http://www.huduser.org/publications/txt/hdbrf2.txt sit amet, consectetur adipiscing elit,

set eiusmod tempor incidunt et labore WallStats.comUT ENIM AD MINIM VENIAM 16

January 5, 2009 - ―The Fall of GM - A Visual Guide‖ http://www.wallstats.com/blog/the-fall-of-gm-a-visual-guide/

Wall Street Journal

1) Timeline: 2 Years in the Credit Crisis http://online.wsj.com/public/resources/documents/info-flash08.html?project=CRISIS0809 2) Europe‘s Financial Crisis http://online.wsj.com/article/SB10001424052748704312504575618840090383702.html

203

6. Conclusion

Existing Households

Borrowers

Lenders

Broker/Dealers

Insurers

Credit Rating Agencies

204

Conclusion

Plenty of warnings of potential credit crisis:

1) My 18, 1994 - Government Accounting Office Report on derivatives (http://archive.gao.gov/t2pbat3/151647.pdf )

2) 2000 - Edward Gramlich (Governor of Federal Reserve Board, 1997-2005) - expressed concern about predatory lending to Federal Reserve Board Chairman Alan Greenspan; recommended Fed send examiners to offices of consumer-finance lenders that were units of FRB-regulated bank holding companies (p. 135)

3) 2002 - Gradient Analytics: repeatedly questioned profit-and-loss statements at four of the nation's top mortgage lenders (p. 148)

4) December 31, 2002 - Berkshire Hathaway Annual Report (p. 148)

5) 2003 - William White (chief economist at Bank for International Settlements) criticized securitization business, identified dangers of risky loans, provided evidence of the lack of credibility of rating agencies (p. 135)

6) February 2003 - Office of Federal Housing Enterprise Oversight Report on systemic risk (p. 135)

7) August 2004 - Merrill Lynch economists: analysis of housing market (p. 148)

8) 2006 - Nouriel Roubini speech at International Monetary Fund (p. 136)

9) 2006-2007 - Clayton Holdings Analysis of mortgage pools (p. 148)

10) December 2006 - Center for Responsible Lending Report on foreclosures (p. 149)

11) April 2008/May 2008 - David Einhorn (Greenlight Capital) speeches (p. 152)

205

Conclusion

1) Existing Households: a) weakened financial condition via sharp rise in leverage (household debt-to-assets ratio rose from 13% to peak of 22% between 2000-2008) b) rising household debt levels led to increase in new defaults, catalyst for recession

2) Borrowers: a) borrowed aggressively against increases in home equity b) narrow window of repayment opportunity (between refinancings and house price peak) c) unclear on complexity of nonconventional mortgages (interest-only mortgages, negative amortization mortgages, low-rate mortgages with high reset rates) d) borrowed too much - eroded equity in homes, raised household debt service

5) Lenders (mortgage originators): a) needed new revenue sources b) eroded mortgage-lending standards c) lacked incentive (―originate to distribute‖ mortgage model) to assure that loans would be serviced (sold mortgages quickly to other banks which failed to check creditworthiness of borrowers); no responsibility for outcome of repackaged loans

4) Broker/Dealers: a) sold risk transfer via esoteric, complex derivative securities (collateralized debt) 1) layers of securitization - no limits (as percent of amount of collateralized credit) 2) no historic pricing/trading data on new asset-backed securities 3) total lack of pricing clarity (no readily available data) on thinly traded securities 4) profit (loss) potential disguised b) link between credit risk and funding risk c) financial condition obscured, regulatory capital requirements circumvented via off-balance sheet tactics d) revenue and compensation benefits realized e) proprietary trading - too much leverage in illiquid positions with minimal pricing data f) no apparent governance (Board of Directors)

5) Insurers sold risk insurance via additional esoteric, complex credit instruments a) credit default swaps b) bond insurance

6) Credit Rating Agencies: a) perpetuated mis-pricing of debt with wrong ratings b) realized revenue and rising stock price benefits

206

Conclusion: Lessons from a Bubble

Timeless lessons applicable to any and every bubble or panic:

1) Beware on Wall Street: bulls make money, bears make money, pigs get slaughtered 2) Beware of your cash-generating ability - is it (more than) adequate to support an investing opportunity? 3) Beware of your cash-generating goal - what‘s the most you can make on an investing decision? How much do you expect to make? How much will you settle for? 4) Beware of the investing decision - trading opportunity (short-term) or investing opportunity? 5) Beware of your risk tolerance - can you sleep at night? 6) Beware of your risk parameters - must everything ‗go right‘ in order to profit? 7) Beware of your risk window of opportunity - how much time do you think you have to make money 8) Beware of the risky use of leverage - it better not exceed or threaten your capital base 9) Beware of how much capital is at risk - what percentage of assets are exposed?; how much can you afford to lose? 10) Beware of need for due diligence (‗counterparty risk‘) - do you ‗really‘ know the credit history of the party on the other side of a transaction? Trust no one else‘s opinion without verifying information 11) Beware of ‗assumptions‘ - ―...must be OK because...‖; assume nothing...verify 12) Beware of excess complexity - if you can‘t easily understand how you‘re going to make money, don‘t do it; if a broker can‘t easily explain why you‘re going to make money, avoid it 13) Beware of ‗event risk‘ - what could happen which could destroy your investment, or portfolio? 14) Beware of ‗chasing‘ an investing opportunity - price moving faster than you can (fear of ‗not getting in‘ may be short-lived; profit potential will be less as you seem willing to ‗pay up‘) 15) Beware of market risk (‗dearth of information‘) - lack of readily available pricing or returns data to support an investing idea 16) Beware of market risk (thin, illiquid trading markets) - when you ‗are‘ the market, you better be right. If you‘re wrong, you may be out of business - you‘ll find no buyers when you want to sell 17) Beware of market risk (‗excesses‘ in industries and markets) - ratios which set record highs, valuations which defy operating fundamentals, explanations which invoke new methods of/reasons for valuations 18) Beware of market changes (market ‗tops‘) - first reported losses after prolonged market gains 19) Beware of market risk (‗getting out‘) - can you exit an investing opportunity easily (i.e. redeem)? when you want to? 20) Beware of the use of accounting tricks - no profitable company needs to disguise its operating condition 21) Beware of ‗too good to be true‘ - if you don‘t need to put up a lot of cash, what‘s the catch? when will you have to ante up? how much will you have to pay (especially relative to what you can afford)? 22) Beware of those who blame short sellers - they‘re hiding something negative about their profitability

207

7. Index

Authors

Companies

Government

People

Sources of Charts/Graphs

208

7. Index

Authors (A-Ch) Acharya, Viral V. p. 161, 194 Allen, Franklin p. 181 Altorfer, Stefan p. 181 Ambachtshee. Kieth p. 161 Andrews, Edmund L. p. 162 Anonymous p. 194 Appelbaum, Binyamin p. 200 Arestis, Philip p. 173 Atkinson, Dan p. 164 Authers. John p. 173 Balzli, Beat p. 198 Bamber, Bill p. 190 Barbera, Robert J. p. 162 Barth, James R. p. 162 Beatty, David p. 161 Bierman, Harold, Jr. p. 181 Bitner, Richard p. 181 Bookstaber, Richard p. 194 Bonner, Bill p. 181 Booth, Lawrence p. 161 Boyes, Roger p. 163 Brender, Anton p. 181 Brown, Gordon p. 173 Brummer, Alex p. 193 Burton, Theodore E. p. 182 Cable, Vince p. 163 Calverley, John p. 163 Caprio, Gerard p. 182 Carruthers, Bruce G. p. 183 Carter, Graydon p. 179 Cassidy, John p. 163 Chapman, Peter p. 191 Chinn, Menzie D. p. 179

209

5. Index

Authors (Co-Gi) Cockburn, Leslie p. 189 Cohan, William D. p. 190 Daniel, Jennifer p. 203 Das, Satyajit p. 195 de la Merced. Michael J. p. 200, 203 DeLong, Brad p. 201 Dewatripont, Mathias p. 164 Dorgan, Byron L. p. 164 Dowd, Kevin p. 173 Drezner, Daniel W. p. 202 Duckenfield, Mark p. 181 Duffie, Darrell p. 182 Eichengreen, Barry p. 182 Elliott, Larry p. 164 Erickson, Matthew p. 203 Evans, David p. 198 Faber, David p. 195 Farrell, Greg p. 193 Felsenheimer, Jochen p. 182 Ferguson, Charles p. 189 Ferguson, Niall p. 199 Financial Crisis Inquiry Commission p. 180 Fleckenstein, Bill p. 170 Florida, Richard p. 174 Fox, Justin p. 164 French et al, Kenneth R. p. 174 Frieden, Jeffry A. p. 179 Friedman, Jeffrey p. 174 Gale, Douglas p. 181 Gamble, Andrew p. 165 Gasparino, Charles p. 165 Geisst, Charles R. p. 165 Gelinas, Nicole p. 183 Gilbert, Mark p. 175 Gisdakis, Philip p. 182

210

5. Index

Authors (Gl-La) Gladwell. Malcolm p. 199 Goodman, Peter G. p. 165 Gorton, Gary B. p. 175, 199 Gramlich, Edward M. p. 158 Greider, William p. 199 Greenberg, Alan C. p. 190 Gross, Daniel R. p. 166 Gup, Benton E. p. 183 Hagerty, James R. p. 200 Halliday, Terence C. p. 183 Hanson, James A. p. 182 He, Elaine p. 203 Heuvel, Katrina vanden p. 160 Hirsch, Michael p. 195 Hoffman, Philip T. p. 183 Hudson, Michael W. p. 175 Hutchinson, Martin p. 173 Immergluck, Dan p. 166 Isaac, William M. p. 176 Johnson, Simon p. 195 Kansas, Dave p. 196 Kaplan, Thomas p. 203 Karakitsos, Elias p. 173 Kaufman, Henry p. 166 Kelly, Kate p. 190 King, Stephen D. p. 176 Koehler, Benedikt p. 181 Kolb, Robert W, p. 176, 180 Konings, Martin p. 184 Kothari, Vinay B. p. 184 Krugman. Paul p. 200 Kuttner, Robert p. 159 Kwak, James p. 195 Lattman, Peter p. 203 Lanchester, John p. 184 Legrain, Philippe p. 63

211

5. Index

Authors (Le-Pi) Legrain, Philippe p. 184 Leopold, Les p. 166 Lewis, Michael p. 166, 176, 200 Lindgren, Hugo p. 199 Litan, Robert E. p. 182 Lowenstein, Roger p. 196 Lynn, Matthew p. 184 Malloy, Michael P. p. 191 Marazzi, Christian p. 177 Mason, Paul p. 167 McDonald, Lawrence G. p. 192 McGee, Suzanne p. 191 McLean, Bethany p. 177 Mehrling, Perry p. 185 Meyer, Philip C. p. 176 Michaelson, Adam C. p. 191 Mihm, Stephen p. 178 Milne, Alistair p. 167 Mitchell, Lawrence p. 185 Mizen, Paul p. 202 Moghadam, Reza p. 202 Morris, Charles R. p. 159, 167, 185 Moss, David A. p. 158 Münchau, Wolfgang p. 167 Muolo, Paul p. 159 National Bureau of Economic Research p. 158 Nesvetailova, Anastasia p. 185, 186 Nocera, Joe p. 177 Norberg. Johan p. 168 Overtveldt, Johan van p. 168 Padilla, Matthew p. 159 Paulson, Henry M., Jr. p. 177 Perino, Michael p. 186 Phillips, Kevin p. 160 Pisani, Florence p. 181

212

5. Index

Authors (Po-Sc) Pollock, Alex J. p. 186 Posner, Richard A. p. 168 Postel-Vinay, Gilles p. 183 Pozen, Robert p. 169 Rajan, Raghuram G. p. 186, 202 Rapp, Donald p. 187 Rasmus, Jack p. 187 Rattner, Steven p. 177 Read, Colin p. 169 Rebonato, Riccardo p. 159 Reich, Robert B. p. 187 Reinhart, Carmen M. p. 170 Richardson, Matthew p. 161 Risager, Ole p. 179 Ritholtz, Barry p. 170 Rochet Jean-Charles p. 164 Rodrigue, Jean-Paul p. 9, 201 Rogoff, Kenneth S. p. 170 Rose, Caspar p. 179 Rose, Stephen J. p. 178 Rosenthal, Jean-Laurent p. 183 Rothacker, Rick p. 190 Roubini, Nouriel p. 178 Schiessl, Michaela p. 198 Scheer, Christopher p. 187 Scheer, Robert p. 187 Schoenfeld, Amy p. 203 Schwartz, Herman M. p. 170

213

5. Index

Authors (Sh-Z) Sheng, Andrew p. 171, 188 Shiller, Robert J. p. 160 Shin, Hyun Song p. 188 Sloan, Robert p. 196 Smick, David p. 188 Smith, David p. 178 Smith, Yves p. 188 Sorkin, Andrew Ross p. 171, 200 Soros, George p. 160 Sowell, Thomas p. 171 Stein, Judith p. 197 Stewart, James B. p. 199 Stiglitz, Joseph E. p. 178, 200 Taibbi, Matt p. 197 Talani, Leila Simona p. 179 Taylor, John B. p. 172 Tett, Gillian p. 193 Thomsen, Steen p. 179 Tibman, Joe p. 192 Tirole, Jean p. 164 Triana, Pablo p. 197, 199 Ward, Vicky p. 192 Weinstein, Paula p. 189 Wessel, David p. 172 Westbrook, David A. p. 172 White, Ben p. 199 Wiggin, Addison p. 181 Williams, Mark T. p. 192 Wright, Robert E. p. 179 Zandi, Mark p. 161 Zuckerman, Greg p. 193

214

5. Index

Companies (A-C) ABACUS 2007-AC1 p. 146-148 ABX index p. 82 Ambac Financial Group p. 147 American Home Mortgage Investment Corporation p. 147 American International Group Inc. (A.I.G.) p. 65, 83, 88, 146, 149, 150, 152, 156 Ameriquest Mortgage Company p. 145 ARMs p. 48-49, 142 Asset-Backed Commercial Paper p. 79 Asset Returns p. 16, 17, 93 Bank of America p. 147, 149, 151- 153 Banks - Market Capitalization p. 92 Bear Stearns p. 87, 143, 146- 148, 153 Berkshire Hathaway p. 144, 150 BISTRO p. 143 BNP Paribas p. 147 Bradford & Bingley plc p. 150 Bubble - Four Phases p. 9, 10 Capital - Global Flow p. 35, 36 Capital Ratios p. 75 Cash Flow Drivers - Bonds p. 28 Center for Automotive Research p. 155 Center for Responsible Lending p. 145 Chrysler Corporation p. 29, 55 CIT Group p. 151 Citigroup p. 64, 140, 141, 147, 151, 152, 155, 156 Clayton Holdings p. 144, 155 Collateralized Debt Obligations p. 58-61, 142 Credit Default Swaps p. 62-63, 82 Credit Derivatives Market p. 64, 76-77 Credit Rating Agencies p. 66-68

215

5. Index

Companies (D-Le) Counterparty Risk p. 57, 84 Countrywide Financial Corporation p. 146, 149, 155 Credit Market - Debt Mix p. 20, 103 Credit - Household Cost p. 31 Credit - Risk p. 45-46 Dot.com Bubble p. 29 Dow Jones Industrial Average p. 14, 15, 16 Fannie Mae p. 141, 144, 145, 149, 152, 153 Financial Stability Map p. 70-71, 114 First Alliance Mortgage Company p. 144 First Union Capital Markets p. 143 Fitch p. 147 Fortis N.V./S.A. p. 150 Freddie Mac p. 142, 146, 149, 153 General Motors p. 144, 151, 152, 153, 155, 156 Goldman Sachs p. 83, 137, 145, 146, 149, 154, 155 Government Risk Index p. 84 Gradient Analytics p. 144 HBOS plc p. 150 HSBC Holdings plc p. 145 Home Ownership p. 31, 33, 96, 144 Home Prices p. 24, 30, 31, 72, 144 Homes Sales p. 144, 148 Homeowners Equity p. 98

216

5. Index

Companies (Li-W) Household Debt p. 24, 25, 47, 97 Household Defaults p. 100 Household Foreclosures p. 101-102, 104 Housing Affordability p. 33, 141, 152 Housing Index p. 80 Housing Starts p. 142 IKB Deutsche Industriebank AG p. 146 IndyMac p. 149 Interconnected p. 81, 83, 94, 112 Landesbank Sachsen LB p. 147 148 Lehman Brothers p. 89, 148 149, 156 Leverage - Investment Banks p. 78 LIBOR p, 143 Liquidity Crunch p. 147 Liquidity Cycle p. 86 Liquidity Indicators p. 90-91 Lloyds TSB plc p. 150 Losses p. 109-111 Merrill Lynch p. 144, 147, 149 Merrill Option Volatility Estimate (MOVE) p. 85 Moody‘s Investor Services p. 146, 148, 155 J.P. Morgan Chase p. 143 Morgan Stanley p. 141, 149, 154 Mortgages p. 39-43, 53-56, 72 National Bureau of Economic Research (Business Cycle Dating) p. 28, 31 National City Corporation p. 28 New Century Financial Corporation p. 146 Non-Mortgage Asset-Backed Securities Offerings p. 143 Northern Rock plc p. 147, 148 Paulson & Co. p. 146, 149 PNC Financial Services p. 151 Private Label Mortgage-Backed Securities p. 141

217

5. Index

Companies (Li-W)

REMIC p. 143 Reserve Primary Fund p. 149 Risk Metrics p. 143 Royal Bank of Scotland Group PLC p. 150, 152 Securitization p. 23, 50-52 Shadow Banking p. 60 Standard & Poor‘s (S&P) p. 146 Standard & Poor‘s 500 p. 15 S&P/Case-Shiller National U.S. Home Price Index p. 24 S&P bank Index p. 80 Stock Market p. 147 Structured Finance p. 60, 65 UBS (Union Bank of Switzerland) p. 146 VaR p. 73, 74 Wachovia Corporation p. 150 Washington Mutual Bank p. 150 World Savings Bank p. 142

218

5. Index

Government (A-Fe) American Housing Act of 1949 p. 126 American Recovery and Reinvestment Act of 2009 p. 134 Asian Crisis - Parallels p. 27 Auto Supplier Support Program p. 135 Bank of England p. 132 British Government p. 133 Basel I Capital Accord p. 128, 129 Basel II p. 131 Basel III p. 138 Car Allowance Rebate System p. 136 Commodity Exchange Act p. 135 Community Reinvestment Act of 1977 p. 127 Compensation Czar p. 136 Congressional Oversight Panel p. 138 Consumer Assistance to Recycle and Save Act of 2009 p. 135 Consumer Credit Protection Act p. 126 Consumer Financial Protection Bureau p. 138 Credit Rating Agency Reform Act of 2006 p. 131 Depository Institutions Act of 1982 p. 127 Depository Institutions Deregulation and Monetary Control Act of 1980 p. 127 Economic Stimulus Act of 2008 p. 132 Emergency Economic Stabilization Act of 2008 p. 133 Emergency Home Finance Act of 1970 p. 126 European Financial Stability Facility p. 137, 139 European Union p. 138

219

5. Index

Government (Fe-W) Fair Housing Act of 1968 p. 126 Federal Deposit Insurance Corporation (FDIC) p. 133,16, 21, 23, 24, 30, 31, 34 Federal Deposit Insurance Corporation Improvement Act of 1991 p. 128 Federal Home Loan Bank Act p. 126 Federal Home Loan Mortgage Corporation Act p. 142 Federal Housing Enterprises Financial Safety and Soundness Act of 1992 p. 128 Federal National Mortgage Association Charter Act p. 126 Federal Reserve Bank of Boston p. 143, 201 Federal Reserve Bank of Kansas City p. 202 Federal Reserve Bank of New York p. 202 Federal Reserve Bank of St. Louis p. 202 Federal Reserve Board p. 37, 105-107, 129, 131, 133, 140 Financial Crisis Inquiry Commission p. 136, 140, 141 Financial Deregulation p. 37 Financial Institution Reform, Recovery, and Enforcement Act of 1989 p. 128 Financial Services and Markets Act 2000 p. 130 Financial Services Authority p. 12 Financial Stability Board p. 135 Financial Stability Plan p. 134 Foreclosure Documentation p. 33 Fraud Enforcement and Recovery Act of 2009 p. 135

220

5. Index

Government (Fi-W) G-7 p. 127 G-20 p. 130, 131 138, 139 General Accounting Office p. 128 Government Asset Protection Scheme UK) p. 134 Grain Futures Act p. 126 Gramm-Leach-Bliley Financial Services Modernization Act of 1999 p. 130 Greece p. 137 Helping Families Save Their Homes Act of 2009 p. 135 Home Mortgage Disclosure Act of 1975 p. 127 Homeowner Affordability and Stability Plan p. 134 Home Owners‘ Equity Protection Act of 1994 p. 129 Home Owners Refinancing Act p. 126 HOPE NOW p. 132 Housing and Economic Recovery Act of 2008 p. 14 Housing and Urban Development Act of 1968 p. 126 Department of Housing and Urban Development (HUD) p. 129 Interest Rates p. 19, 38 International Monetary Fund p. 112, 131, 132 Investment Advisers Supervision Coordination Act of 1996 p. 129 Ireland p. 139 Mortgage Forgiveness Debt Relief Act of 2007 p. 132 National Homeownership Strategy p. 129 National Housing Act of 1934 p. 126 Nobel Prize in Economics p. 128

221

5. Index

Government (Fi-W) Office of Federal Housing Enterprise Oversight p. 128, 130 Office of the Special Inspector General for the Troubled Asset Relief Program p. 133, 134 Office of Thrift Supervision p. 128, 135 Operation Malicious Mortgage p. 132 Private Securities Litigation Reform Act p. 129 Public-Private Investment Program p. 135 Real Estate Settlement Procedures Act of 1974 p. 127 Recovery Accountability and Transparency Board p. 134 Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 p. 129 ‗Robo-Signers‗ (Foreclosure Documentation) p. 155 Sarbanes-Oxley Act of 2002 p. 130 Secondary Mortgage Market Enhancement Act p. 127 Securities and Exchange Commission (SEC) p. 130, 133, 137 Stress Tests (banks) p. 153 Survey of Bank Lending p. 134 Systemic Risk p. 141 TARP p. 133, 134, 136, 138, 139, 140 Task Force on the Auto Industry p. 135 Tax Reform Act of 1986 p. 128 Taxpayer Relief Act of 1997 p. 130 Trade - Imbalances p. 34 Unemployment p. 99 Urban Institute p. 129 Valukas Report p. 137 Volcker Rule p. 137 Wall Street Reform and Consumer Protection Act of 2010 p. 137 Worker, Homeownership, and Business Assistance Act of 2009 p. 136

222 5. Index

People (A-K)

Angelides, Phil p. 116 Bernanke, Ben S. p. 116 Blankfein, Lloyd p. 119 Brown, Gordon p. 116, 133 Bush, George W. p. 116, 130 Cassano, Joe J. p. 119 Cayne, Jimmy p. 119 Cioffi, Ralph p. 119, 148, 152 Clinton, Bill p. 117, 129 Corbet, Kathleen p. 119 Cox, Chris p, 117 Darling, Alistair p. 117 Dimon, Jamie p. 120 Donaldson, William H. p. 117 Einhorn, David p. 120, 148 Fuld, Dick p. 120 Geitner, Timothy p. 117, 136 Goodwin, Fred p. 120 Gramlich, Edward M. p. 120 Greenberg, Alan (‗Ace‘) p. 121 Greenspan, Alan p. 118, 131 Gramm, Phil p. 118 Killinger, Kerry p. 121

223 5. Index

People (L-W)

Lewis, Ken p. 121, 151 McDaniel, Raymond W. p. 121 Mozilo, Angelo p. 121, 154 Mudd, Daniel H. p. 122 O‘Neal, E. Stanley p. 122, 146 Paulson, John A. p. 122, 145 Paulson, Henry p. 118, 132 Prince, Charles O., III p. 122, 146 Raines, Franklin p. 123 Roubini, Nouriel p. 123, 131 Rattner, Steven p. 118, 135 Syron, Richard F. p. 123 Tannin, Matthew p. 123, 148, 152 Thain, John A. p. 124, 146, 150 Thompson, Ken p. 124 Tourre, Fabrice p. 124, 144, 153 Trichet, Jean-Claude p. 118 Viniar, David p. 124, 144 Wagoner, Rick p. 124, 151 White, William R. p. 124, 130

224 5. Index

Sources for Charts/Graphs: Baltimore Sun - http://weblogs.baltimoresun.com/business/realestate/blog/HomeownerEquitySmall.jpg Bank for International Settlements - www.bis.org Barron‘s - http://barrons.wsj.net/ Baruch College Department of Economics and Finance - http://faculty.baruch.cuny.edu/jwang/seminarpapers/BCD_basis_Sep2010.pdf Berkshire Hathaway - http://www.berkshirehathaway.com/letters/growing.pdf Big Charts - www.bigcharts.com Brookings Institution - http://www.brookings.edu/~/media/Files/rc/papers/2008/0516_credit_squeeze/0516_credit_squeeze .pdf Calculated Risk - http://www.calculatedriskblog.com Callan Associates Inc. - http://www.callan.com/research/periodic/ Cato Institute - www.cato.org/ CNBC - http://apps.cnbc.com/cgi- bin/upload.dll/file.gif?z0383110az1f7cf6c1563e4157b800174af33cc1b9) Congressional Oversight Panel - http://cop.senate.gov/documents/cop-111610-report-metrics.pdf Council on Foreign Relations - www.cfr.org Economist - http:media.economist.com/ Federal Deposit Insurance Corporation (FDIC) - www.fdic.gov/ Federal Reserve Board - www.federalreserve.gov/ Federal Reserve Bank of Dallas - www.dallasfed.org/ Federal Reserve Bank of New York - www.newyorkfed.org/ Federal Reserve Bank of St. Louis - www.stlouisfed.org/ Federal Reserve Bank of San Francisco - www.frbsf.org/ Financial Times - http://media.ft.com Harvard University - http://www.economics.harvard.edu Hofstra University - http://people.hofstra.edu/jean-paul_rodrigue/jpr_blogs.html

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6. Appendix

Sources for Charts/Graphs: International Monetary Fund - www.imf.org Investment Company Institute - http://www.ici.org/pdf/ppr_09_mmwg.pdf Jurgen Kaljuvee - http://www.jurgenkaljuvee.net Morgan Stanley - http://linkback.morganstanley.com/web/sendlink/webapp/BMServlet?file=76b028ef-158a-11de- 8354-05fa192ae448&user=74utgy9c0vf- 1016&__gda__=1332187519_2992ba365f86646d00cdfa965a102eaa http://www.morganstanley.com/institutional/techresearch/pdfs/MS_Economy_Internet_Trends_102 009_FINAL.pdf Mortgage Statistics - http://mortgagestats.blogspot.com/ New York Times - www.nytimes.com Nw York University (Stern School) - http://pages.stern.nyu.edu/~sternfin/pschnabl/kacperczyk_schnabl.pdf Seeking Alpha - http://static.seekingalpha.com/ Special Inspector General (TARP) - http://www.sigtarp.gov/ Standard & Poor‘s - http://www.standardandpoors.com/spf/fgr_articles/825441/5878853.gif University of Chicago Booth School (U.S. Monetary Policy Forum 2008) - http://research.chicagobooth.edu/igm/events/conferences/2008-usmonetaryforum.aspx Visual Economics - http://www.visualeconomics.com/wp-content/uploads/2009/11/ve-home- prices.png VoxLACEA (Web Forum for Latin American and Caribbean Economic Association) - http://www.lacea.org/vox/ Wall Street Journal Yahoo - http://finance.yahoo.com/echarts?s=^BIX+Interactive#chart1:symbol=^bix;range=my;indicator=vol ume;charttype=line;crosshair=on;ohlcvalues=0;logscale=off;source=undefined

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