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Sub-Prime Mortgage Crisis. S. Ghon Rhee K. J. Luke Distinguished Professor of Finance Shidler College of Business University of Hawai‘I. UH Asia-Pacific Financial Markets Research Center. Write-Offs by Financial Institutions. UH Asia-Pacific Financial Markets Research Center.

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sub prime mortgage crisis
Sub-Prime Mortgage Crisis

S. Ghon Rhee

K. J. Luke Distinguished Professor of Finance

Shidler College of Business

University of Hawai‘I

UH Asia-Pacific Financial Markets Research Center

write offs by financial institutions
Write-Offs by Financial Institutions

UH Asia-Pacific Financial Markets Research Center

capital injections from
Capital Injections from …..
  • Citigroup $14.5 billion GIC (Singapore)

Kuwait Investment Authority

Several Investment Groups

  • Merrill Lynch $6.6 billion Korea Investment Corp.

Kuwait Investment Authority

Mizuho Financial Group Inc.

Other Investment Groups

  • UBS $11.9 billion GIC (Singapore)
  • Morgan Stanley$5 billion China Investment Corporation
  • Barclays $5 billion China Development Bank Temasek Holdings (Singapore)

UH Asia-Pacific Financial Markets Research Center

what is the magnitude of exposure
What is the Magnitude of Exposure?
  • Level 1 Assets:

Value is determined by quoted prices in active market

  • Level 2 Assets:

Value is determined by quoted prices in inactive market or model input prices that are observable

  • Level 3 Assets:

No reference prices are available and strictly based on valuation models

UH Asia-Pacific Financial Markets Research Center

size of level 2 and 3 assets
Size of Level 2 and 3 Assets
  • Level 3 Assets: $330 billion

Level 3 Shareholder Equity

AssetsBookMarket (1/18/08)

Goldman Sachs $72 $35.8 $74.5

Lehman Brothers $22 21.4 28.3

Bear Stearns $20 11.8 9.8

JP Morgan Chase $60 123.0 133.3

  • Level 2 Assets: $4.1 trillion

UH Asia-Pacific Financial Markets Research Center

risk of systemic proportion is brewing
Risk of Systemic Proportion is Brewing….
  • Further write-offs spell disaster for the stock market
  • MBIA Inc. and Ambac Financial Group Inc. , leading bond insurers, will lose their AAA rating
  • Both guarantee payments on $2 trillion worth of bonds
  • Each lost more than $8 billion in their market value since the beginning of 2007

UH Asia-Pacific Financial Markets Research Center

foreign exchange reserves as of december 2007
Foreign Exchange Reserves(As of December 2007)

China US$1,530.0 billion

Japan 973.4

Russia 474.0

India 276.3

Taiwan 270.3

Korea 262.2

Singapore 163.0 (Preliminary)

Hong Kong 152.7

Germany 125.6

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Malaysia 101.3

Thailand 85.0

Philippines 33.7

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Total ( 9 East Asian Economies) $2,919.5

Asia-Pacific Financial Markets Research Center, University of Hawaii

sovereign wealth funds as of december 2007
Sovereign Wealth Funds(As of December 2007)

Government Investment Corp (Singapore) US$330 billion

China Investment Corporation 200

Temasek Holdings (Singapore) 150

Brunei Investment Agency 30

Korea Investment Corporation 20

Khazanah Nasional (Malaysia) 18.3

National Stabilization Fund (Taiwan) 15

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Abu Dhabi Investment Authority (UAE) 1,300

Saudi Arabia (Various) 300

Kuwait Investment Auority 250

Stabilization Fund of the Russian Federation 158

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Total ( 6 East Asian Economies) $763.3

Asia-Pacific Financial Markets Research Center, University of Hawaii

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