Exam 4: The Financial Crisis and Its Impact on the Mortgage Market and Economy

Through mortgage-backed securities, banks can remove the risky mortgages from their balance sheets as well as raise some funds from the sale of the pool of mortgages to the special purpose vehicle.

The first U.S investment bank to fall victim to the credit crisis of 2007-2009 was:

The Obama Plan calls for the creation of a Consumer Financial Protection Agency that would have the authority to gather information from financial institutions as it sees fit to help protect consumers of financial services, as well as other powers.

According to the textbook, changes in the aggregate economy were shown to impact subprime mortgage default rates more severely than traditional mortgage default rates.

Explain the differences between investment banks and commercial banks.

A credit default swap is a purely speculative asset.

A special purpose vehicle (SPV) is best described as:

On October 9, 2007 the S&P 500 stock index closed at an all time high of _______. 19 months later the index had fallen to _________, representing a substantial loss in consumer wealth.

Explain what happens when borrowers of bank loans default. What things are put in place to try to limit the damage this could cause?

Ultimately, Lehman Brothers:

Consumption purchases of households account for about two-thirds of U.S. GDP.

By 2007 there was over $62 trillion in credit instruments covered by credit default swaps worldwide.

AIG was acquired by Morgan Stanley.

Subprime mortgages are typically geared toward borrowers with poor credit histories and/or inadequate asset holdings.

Investment banks and commercial banks differ only in the type of client they serve.

The principal factor determining how much a household purchases is the quality and availability of products.

Securitized assets backed by subprime mortgages that were traded as investment grade securities became known as ____________ during the great credit crisis of 2007-2009.

A traditional mortgage normally requires a down payment of 30 percent.

By April 2009 unemployment reached a record level of just over 12 percent.

Consumer spending is vital to the overall performance of the U.S. economy. An example of this importance can be seem when one considers the fact that consumption purchases of households account for about ________ of the nation's GDP.