FIN 260 Lecture Notes - Lecture 68: Bear Stearns, Toxic Asset
• The Financial Crisis:
➢ Cont’d the Sequence of Events:
8. Banks issued out Credit Default Swaps (CDS).
o Insurance that underlying value of CDO would not fall.
o They made even more money selling this insurance.
o They didn’t keep reserves on hand to pay out in case insurance was
triggered.
9. Housing prices went up a great deal in 2001-2005.
o They start to fall in 2006.
10. Bad loans start to fail & housing prices start to go down in 2006-
2007 since loans aren’t as available anymore.
o Once loans start to fail more inventory comes on the market &
depressed prices.
o Many people can’t make mortgage payments since payments go up w/
types of loans that they have taken on.
o Houses start to foreclose.
▪ Foreclosures cause other houses to decrease in value.
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