Subprime Crisis Case Study

Bankruptcy of major firms in USA:

Major losses were suffered by the mortgage lenders, investments banks, foreign investors and insurance companies. Basically, it was rightly quoted that during these crises, “The problem with the investment banks balance sheet was that on the left side nothing was right and on the right side nothing was left.” Thus, the financial system was dreadfully affected as a whole. Some of the top banks and insurance companies that suffered are mentioned below,

• Bear Stearns investment bank was observed with the initial effect as it imploded and was acquired by J.P Morgan Chase. A number of reasons were stated for its collapse like its heavy investment in subprime mortgage sector which was under distress, gold and silver

This weakened the pace of growth in home ownership and negatively affecting housing market.

Impact of Subprime Mortgage Crisis on Global Economy:

Impact on Europe:

Signs of consequences of subprime crisis started showing in Europe such as London and Germany. Germany’s IKB accepted USD $11.1 billion from US Government as bailout to various investments. Slowdown in Us economy led to slowdown and unemployment in Europe.

Impact on Japan:

Japan wasn’t affected much from subprime crisis as those financial institutions which hold MBS and CDOs investments from overseas, such as major banks and large securities firms, was hit to some extent. Japan don’t do subprime lending so impact was minimum.

Impact on India:

Foreign banks began to reduce their holding in Indian Equities which leads to decline in stock price and weakening the currency. Since majority IT firms derive their revenue from US economy, thereby IT enabled services significantly hit by subprime crisis. In addition, coming recession in US has led to decline in demand for exports hence cause loss in export earning of India as well as cause unemployment or loss of

It was implemented for smooth functioning and stabilization of financial market. Fed introduced temporary Term Auction Facility (TAF) which enabled banks to borrow at rate determined through competitive auction. In addition Fed set up new lending programs to widen its liquidity provision outside banking institutions including investment banks and lending to promote purchases of securities such as commercial paper, MBS etc. Moreover, Fed engaged in lending to Bear Stearns, AIG and Fannie & Freddie. The extension of Fed’s lending programs during 2007-2009 was extraordinary. Liquidity was also increased through swap lines with foreign central