ECON 255 Lecture Notes - Great Moderation, European Debt Crisis, The Chain Reaction
Document Summary
Notes for main reading for econ 255 presentation: the 2008 financial crisis. 2008 financial crisis occurred in the states solution: used a huge amount of taxpayer"s money to bail out the lehman brothers with the intention to prevent collapse of the world"s financial system. More on the great moderation: 1) european bankers were making a lot of borrowing in the form of the usd currency and buying unreliable security. 2) saving in asian countries led to interest rate being low. Cause #1: folly financiers they loaned money to people with poor credit history. Also called irresponsible mortgage lending this kind of subprime is supposed to pose a great risk as the lenders are poor people but the risk was reduced by pooling the total of loans made by the poor. Assumption: pooling works if the risks are unassociated to one another, but this was proven to be false. Further on subprime pooling it is used to back securities known as.
