The Economic Crisis of 2008

1. The Economic Crisis of 2008

2. The Global Pool of Money • All of the money the world is saving • Insurance companies saving for a catastrophe • Pension funds saving money for retirement, • The central bank of England saving for whatever central banks save for. • All the world’s savings. • $70 trillion according to the IMF • All of the money that people spend everywhere in the world in the past year is less than 70 trillion dollars

3. People want that pool of money to grow • To make it grow they must find something to invest in • In 2000 this pool was 36 trillion dollars • It took the world 2000 years for the global pool of money to go from 0 to 36 trillion, but only another 6 years to get another 36 trillion. • Why the sharp increase? The development of third world countries into manufacturing centers • The world was not ready for all this money. • The global army of investers was hungrier than ever

4. They all want a nice low risk place to invest their money • Usually they would invest in US treasury bonds, but Alan Greenspan set the rate at only 1% so they all looked elsewhere • They all want low-risk, high-return investments • They turned to US residential mortgages

5. Global Pool of Money falls in love with mortages • US Treasury bonds only 1% interest • Mortgages are getting 5, 7, or 9% interest • But the Giant Pool of money can’t be bothered with individuals, they need to buy mortgages in bulk

6. Large Investment Bank Sells shares of the monthly income. These are called Mortgage Backed Securities Small Bank 1 Small Bank 2 Small Bank 3 Small Bank 4

7. Large Bank Large Bank Large Bank Giant pool of Money Bank Bank Bank Bank Bank Bank Bank Bank Bank Bank Bank Bank