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 Jesse Krieger May 4 th, 2011.  Subprime Mortgage Crisis  TARP Purpose and Background  TARP and AIG  TARP and GM.

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Presentation on theme: " Jesse Krieger May 4 th, 2011.  Subprime Mortgage Crisis  TARP Purpose and Background  TARP and AIG  TARP and GM."— Presentation transcript:

1  Jesse Krieger May 4 th, 2011

2  Subprime Mortgage Crisis  TARP Purpose and Background  TARP and AIG  TARP and GM

3  Causes of the Crisis: o Housing Prices Peak in 2006 o High Default Rates o Conception of Housing Prices Always Increasing o Housing Loans Approved for Normally Under Qualified Applications o Housing Prices Drop Late o Led to Increase in Mortgage Defaults and Forclosures

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6  New Century Financial Corporation New Century Financial Corporation  American Freedom Mortgage American Freedom Mortgage  American Home Mortgage American Home Mortgage  Bernard L. Madoff Investment Securities LLC Bernard L. Madoff Investment Securities LLC  Charter Communications Charter Communications  Lehman Brothers Lehman Brothers  Linens 'n Things Linens 'n Things  Mervyns Mervyns  NetBank NetBank  Terra Securities Terra Securities  Sentinel Management Group Sentinel Management Group  Washington Mutual Washington Mutual  Icesave Icesave  Kaupthing Singer & Friedlander Kaupthing Singer & Friedlander  Yamato Life Yamato Life  Circuit City Circuit City  Banco Privado Português Banco Privado Português  Allco Finance Group Allco Finance Group  Waterford Wedgwood Waterford Wedgwood  Saab Automobile Saab Automobile  BearingPoint BearingPoint  Tweeter Tweeter  Chrysler Chrysler  General Motors General Motors

7  In Economic Uncertainty, Banks Don’t Loan o Want to Maintain Liquidity o Need Either More Capital or Greater Certainty  Natural Business Tendency to NOT Spend During These Times  TARP Created to Encourage Spending

8  Fundamental Part of the Emergency Economic Stabilization Act of 2008  Gives Secretary of the Treasury Authority to Purchase Troubled Assets o Restore Liquidity o Improve Financial Stability  Other Economic Assistance o Automotive Industry o Private Companies (Toxic Assets) o Fannie and Freddie o AIG

9  Report Submitted to Congress Reporting the TARP’s Progress o terly_Report_to_Congress.pdf terly_Report_to_Congress.pdf  If Short, Legislative Proposal to Recuperate o Ensure that National Debt Does Not Increase

10  American International Group o International Insurance Agency in Over 130 Countries o Reported Losses of $99B in 2008 o Reported Losses of $11B in 2009  Invested in High-Grade Residential Mortgage Backed Securities  Sold Credit Default Swaps to Financial Institutions for Loans Rated AAA  Suffered Great Losses and Liquidity Issues due to Mortgage Crisis

11  November 25 th, 2008 o TARP Purchased $40B in Preferred Stock o %10/yr Dividends  March 2 nd, 2009 o TARP Purchased $30B More in Preferred Stock  Used Capital to Relieve Liquidity Issues

12  Repaid $9B  Plans to Repay o Treasury to Sell Stock Gradually Over Time o Sold Several Subsidiaries ALICO to MetLife for $16B  Net Income of $8B in 2010  Operational Goals o Reduce Risk in Investments and Credit Default Swaps o Reduce Operational Costs o Strengthen Financial Position to Repay Taxpayers

13  General Motors o Buick, Cadillac, Chevrolet, GMC, Daewoo, Holden, Isuzu, Jiefang, Opel, Vauxhall, Wuling… o Locations in 31 Countries  Downturn in Economy o Reported Losses of $39B in 2007 o Reported Losses of $31B in 2008

14  US Treasury Purchased $51B in Common Stock o 61% Stake in the Company  Returned $23B  US Received Revenue of $700M to Date

15  Reorganized Under Chapter 11 Bankruptcy o Primarily Used by Corporate Entities o Ch. 13 Pertains to the Reorganization of Private Individuals o Ch. 7 Pertains to Liquidation Bankruptcies  Listed on the NYSE on November 18 th, 2010  World’s Largest IPO of $23B  “Repaid” Debt Early  Claimed Ability due to Increase in Malibu and LaCrosse Sales  Used Federal Funds to Repay TARP Debt  Net Income of $5B in 2010

16  Activity to Date o 928 Recipients o $619B Committed 27.3% Banks/Financial Institutions, Cap at $475B 14.1% Fannie and Freddie, No Cap 12% Auto Companies, Included in $475B Cap Toxic Asset Purchases, Cap at $22.4B o $564B Dispersed o $259B Returned o $57B Total Revenue  Notice – Did Not Cost $700B

17  Was this program effective? Is this even measureable or quantifiable?  Will the TARP encourage institutions to take more risks, knowing that the government will bail them out? o Pros? o Cons?

18                    


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