9/8/2023 0 Comments Global economic meltdown 2008![]() Matthew Jozoff, Securitized Products Research, J.P. MorganĬompared to 2008, the U.S. consumers are not nearly as exposed to rates as they used to be, with just about 15% of the outstanding mortgage market at an adjustable rate. This, along with excessive leverage, inadequate lending standards and poor risk controls ultimately led to a collapse of the housing market, the bailout of Fannie Mae and Freddie Mac and the financial crisis of 2008. Government sponsored enterprises Fannie Mae and Freddie Mac bought large volumes of these mortgages from banks and resold them as mortgage-backed securities to investors. Particular lenders focused on weaker borrowers (subprime and alt-A) and were met with strong investor demand. ![]() ![]() Issuance rose from $125 billion in 2000 to over $1 trillion per annum in 2005-06. The securitized products market was booming, particularly non-agency residential mortgages. At the same time, mortgage credit growth increased by nearly 45% on U.S. In the years leading up to the crisis, the Fed substantially tightened monetary policy, hiking rates by 425 basis points between 2004-2006. Joseph Lupton, Senior Global Economist, J.P. Morgan In the U.S., the fiscal deficit is projected to reach 5.4% of GDP by the end of 2019. Despite a substantial decline from its 7.3% peak in 2009, the global fiscal deficit remains elevated at 2.9% of GDP. The fiscal lending position of DM as a share of GDP fell sharply by more than 8 percentage points to a post-World War II low of nearly -9% in 2009. With fiscal deficits still relatively elevated, there is no sign that debt levels will be declining in the foreseeable future. The bulk of the rise is found in developed markets (DM) where debt-to-GDP has surged roughly 41 percentage points-compared to a 12 percentage point rise in emerging markets. Global sovereign debt has ballooned by 26 percentage points of GDP since 2007. So how have things progressed since 2008? Global debt has ballooned Four major long-term forces of globalization, deregulation, innovation and falling volatility had built up since the mid-1980s, ultimately creating a vulnerable system that was hard to detect. Ten years ago, it wasn’t clear to investors that the worst economic downturn since the Great Depression was on the horizon. Please enter a valid search, no special characters allowed. ![]()
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