Main Features and the Cause of Recent Financial Crisis
Main features and the cause of recent financial crisis
I Introduction
On 5 March 2007, HSBC announced its 2006 annual result. Highlighted in the presentation material (HSBC (2007)), ‘Mortgage arrears in the US resulted in an increase in loan impairment charge from US$448 million to US$2,171 million for Mortgage Services’.
On 2 April 2007, as reported in BBC News1, ‘New Century Financial, one of the largest sub-prime lenders in the US, has filed for Chapter 11 bankruptcy.’ 1
On 6 August 2007, American Home Mortgage, one of the largest US independent home loan providers, also filed for bankruptcy.
In October 2007, large banking groups such as UBS, Citigroup, and Merrill Lynch all revealed loss on mortgage-related business.
On 17 March 2008, Bear Sterns, Wall Street's fifth largest investment bank, was acquired by JPMorgan Chase.
On 7 September 2008, Freddie Mac and Fannie Mae, two giant mortgage lenders which account for nearly half of the outstanding mortgage in the United States, are bail-out by the United States government.
On 15 September 2008, Lehman Brothers, the fourth-largest investment bank in the
1 http://news.bbc.co.uk/1/hi/business/6519051.stm
US, filed for bankruptcy.
On 24 September 2008, Federal Reserve Bank of New York, the largest central bank in the central banking system of United States, had a 79.9% stake in the insurance giant AIG.
From August 2007 to October 2008, the federal fund rate was decreased by 5.25% to 1%.
From October 2007 to December 2008, the S&P 500 index decreased almost half the value.
Starting from August, 2007, the TED spread, which measures the difference between the interest rates on interbank loans and short-term U.S. government debt, climbs to exceptional high level. (See Chart 1, which shows the TED spread)
All of these are evidence of the current happening financial crisis – banks are losing money, mortgage lenders are in trouble, numerous large-scaled financial institutions restructured, being
I Introduction
On 5 March 2007, HSBC announced its 2006 annual result. Highlighted in the presentation material (HSBC (2007)), ‘Mortgage arrears in the US resulted in an increase in loan impairment charge from US$448 million to US$2,171 million for Mortgage Services’.
On 2 April 2007, as reported in BBC News1, ‘New Century Financial, one of the largest sub-prime lenders in the US, has filed for Chapter 11 bankruptcy.’ 1
On 6 August 2007, American Home Mortgage, one of the largest US independent home loan providers, also filed for bankruptcy.
In October 2007, large banking groups such as UBS, Citigroup, and Merrill Lynch all revealed loss on mortgage-related business.
On 17 March 2008, Bear Sterns, Wall Street's fifth largest investment bank, was acquired by JPMorgan Chase.
On 7 September 2008, Freddie Mac and Fannie Mae, two giant mortgage lenders which account for nearly half of the outstanding mortgage in the United States, are bail-out by the United States government.
On 15 September 2008, Lehman Brothers, the fourth-largest investment bank in the
1 http://news.bbc.co.uk/1/hi/business/6519051.stm
US, filed for bankruptcy.
On 24 September 2008, Federal Reserve Bank of New York, the largest central bank in the central banking system of United States, had a 79.9% stake in the insurance giant AIG.
From August 2007 to October 2008, the federal fund rate was decreased by 5.25% to 1%.
From October 2007 to December 2008, the S&P 500 index decreased almost half the value.
Starting from August, 2007, the TED spread, which measures the difference between the interest rates on interbank loans and short-term U.S. government debt, climbs to exceptional high level. (See Chart 1, which shows the TED spread)
All of these are evidence of the current happening financial crisis – banks are losing money, mortgage lenders are in trouble, numerous large-scaled financial institutions restructured, being