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  • Ghufran Intro

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    Berjees Shaikh
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    The document discusses the 2008 financial crisis in Iceland. Iceland had a GDP of $13 billion but bank losses were estimated at $100 billion. Broad deregulation and large risk-taking by banks allowed them to borrow heavily and multinational corporations to overexploit natural resources. Securitization of subprime mortgages, derivatives like CDOs and CDS, and high leverage ratios of up to 33:1 at banks contributed to the crisis. Politicians, regulators, financial institution management, insurers, and credit rating agencies all failed to implement necessary controls and oversight. The crisis resulted in tens of millions losing savings, homes, and income, with estimated global losses of $20 trillion, while many responsible parties faced few consequences

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    The document discusses the 2008 financial crisis in Iceland. Iceland had a GDP of $13 billion but bank losses were estimated at $100 billion. Broad deregulation and large risk-taking by banks allowed them to borrow heavily and multinational corporations to overexploit natural resources. Securitization of subprime mortgages, derivatives like CDOs and CDS, and high leverage ratios of up to 33:1 at banks contributed to the crisis. Politicians, regulators, financial institution management, insurers, and credit rating agencies all failed to implement necessary controls and oversight. The crisis resulted in tens of millions losing savings, homes, and income, with estimated global losses of $20 trillion, while many responsible parties faced few consequences

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    5 views7 pages

    Ghufran Intro

    Uploaded by

    Berjees Shaikh
    The document discusses the 2008 financial crisis in Iceland. Iceland had a GDP of $13 billion but bank losses were estimated at $100 billion. Broad deregulation and large risk-taking by banks allowed them to borrow heavily and multinational corporations to overexploit natural resources. Securitization of subprime mortgages, derivatives like CDOs and CDS, and high leverage ratios of up to 33:1 at banks contributed to the crisis. Politicians, regulators, financial institution management, insurers, and credit rating agencies all failed to implement necessary controls and oversight. The crisis resulted in tens of millions losing savings, homes, and income, with estimated global losses of $20 trillion, while many responsible parties faced few consequences

    Copyright:

    © All Rights Reserved
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    Download as pptx, pdf, or txt
    of 7

    Lessons from PRIOR

    EXAMPLES OVERLOOKED
    ICELAND

    GDP: $13 billion


    Bank losses: est. $100 billion

    Means:
    Broad deregulation, large appetite for banks to
    borrow and MNC’s abusing natural resources
    SYSTEMS and
    INSTRUMENTS USED TO
    CAUSE CRISIS
    • Securitization Chain

    • Subprime mortgage loans

    • Derivative Market (A financial innovation


    that made markets riskier)
    • CDOs and CDS
    SECURITIZATION CHAIN

    COLLATERALIZED DEBT
    OBLIGATIONS (CDO)
    Another Derivative: CDS
    HOW DID THIS SPEED UP?

    • ↑ Business = high risk (gambling with customers’


    money), rather than ↑ Quality
    • High leverage of banks:
    Initially - 3:1
    During the bubble- 33:1
    • Betting on instruments they didn’t OWN
    • No fear of regulation requirements and penalties
    Who’s responsible?

    • Politicians, regulators, top management of


    the financial institutions, insurers, credit
    rating agencies.
    BASICALLY EVERYONE WHO COULD HAVE
    EASILY PUT TIGHT CONTROLS!
    COSTS?

    • Tens of millions of people losing their


    savings, their homes and their income
    • Estimated $20 Trillion losses

    • Leading players in the fraud: Paid roughly


    nothing!

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