Subprime loans increased dramatically… But were still a small part of all mortages.. Alternatives to Bailout plan Demanding stock (share in profits) in return for providing capital to troubled banks. Good idea from taxpayer’s perspective but not likely to help if bankers do not participate. No easy answers.. Rules of auction and other details of bailout are critical for  preventing a deeper and longer recession, as well as, Not enriching banks at the expense of tax payers. Treasury Secretary has 45 days to come up with the details of the plan to buy toxic assets. Watch for more details.. Meanwhile, time is running out as evidenced by the deepening of the crisis. 2008 Credit Crisis  China Int’l Investment Stock  Group Limited  2008-12-3      The Beginnings of the Crisis You have heard that the current credit crisis began in the housing market.  We will look at the basics of the mortgage market to understand how it affected the financial markets.  But first, we will look at the meaning of some financial terms that you will encounter in this presentation. Some Terminology Mortgage – to pledge property as security for a loan Collateral – the property that is pledged Liquidity – ease of conversion of an asset into cash Security – A certificate (paper or electronic) that gives 			certain rights to the lender. Securitization – process involving pooling loans and creating securities backed by the loans. Bonds/Debt instrument – A security that gives the holder a right to receive a fixed amount (called “face value”) on a fixed date in the future (date of maturity) and right to receive periodic interest payments (called the “coupon rate” ). Conventional Mortgage Process… …begins when a buyer wishing to buy a house, approaches a bank/financial institutions for a loan. Bank/Financial Institution checks borrower’s credit history, income, other financial data (such as other debts owed), and then decides whether to make the loan. Once the loan is made, the bank’s money is tied up for the duration of the loan (typically 30 years). This made traditional real estate loans very illiquid. Securitization of mortgages was meant to turn these illiquid loans into more liquid assets.. What is Securitization of Mortgages Mortgage securitization is the process in which several real estate loans are pooled together and then broken up into smaller pieces to be sold to investors.  Just like stock ownership makes it possible for each one of us (no matter how wealthy or not wealthy) to own a piece of a company (instead of the whole), and enjoy shares of the profits, mortgage securitization, in theory, makes it possible for investors to hold a piece of the mortgage and enjoy shares of the interest (and principal) payments. Securitization can be a good thing.. ..because it allows money to flow from the savers (and investors who are willing to bear the risk), to the borrowers who do not have the money but want to use it. Obviously, the bank (or other financial institution) that made the original loan is also already performing this function. So why the

中国国际投资公司的内部资料.ppt