20 years: Trading & hedge funds
The bursting of the US housing bubble and the subsequent collapse of the sub-prime mortgage market triggered a series of events that led to what we now call the global financial crisis. Trevor discusses the monetary policy response to that crisis, in particular quantitative easing.
The bursting of the US housing bubble and the subsequent collapse of the sub-prime mortgage market triggered a series of events that led to what we now call the global financial crisis. Trevor discusses the monetary policy response to that crisis, in particular quantitative easing.
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6 mins 40 secs
The bursting of the US house bubble, and the subsequent collapse of the sub-prime mortgage market, triggered a series of events that led to the global Financial Crisis. With these unprecedented impacts on the economy, a swift approach was needed - this came in the form of QE.
Key learning objectives:
Identify the role of the sub-prime mortgage market
Explain the impact of banks via securitisation
Describe the approaches of the FR, ECB and the BOE
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A large number of sub-prime securitisation and CDO investors were in Europe. European banks had struggled with low returns, and thus sought better returns in faster growth areas (US Sub-prime mortgage market). The issue was that they required dollar funding to invest in these products - around two trillion dollars daily.
As credit conditions tightened in the US, European banks struggled to roll over their funding for their US positions and therefore needed to sell their mortgage assets, this in turn created a vicious circle in the market, falling prices and forcing further sales.
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