Slide 1Presentation ContentSubprime Mortgage CrisisSubprime Mortgage Crisis (Cont.)Subprime Mortgage Crisis (Cont.)Companies Failed During CrisisEconomic CrisisTARP BackgroundTARP ContinuedAIG In TroubleTARP and AIGAIG Moving ForwardGM In TroubleTARP and GMGM Moving ForwardConclusionConclusion (Cont.)Works Cited Troubled Asset Relief ProgramJesse KriegerMay 4th, 2011Presentation ContentSubprime Mortgage CrisisTARP Purpose and BackgroundTARP and AIGTARP and GMSubprime Mortgage CrisisCauses of the Crisis:oHousing Prices Peak in 2006oHigh Default RatesoConception of Housing Prices Always IncreasingoHousing Loans Approved for Normally Under Qualified ApplicationsoHousing Prices Drop Late 2006-2007oLed to Increase in Mortgage Defaults and ForclosuresSubprime Mortgage Crisis (Cont.)Subprime Mortgage Crisis (Cont.)Companies Failed During CrisisNew Century Financial CorporationAmerican Freedom MortgageAmerican Home MortgageBernard L. Madoff Investment Securities LLCCharter CommunicationsLehman BrothersLinens 'n ThingsMervynsNetBankTerra SecuritiesSentinel Management GroupWashington MutualIcesaveKaupthing Singer & FriedlanderYamato LifeCircuit CityBanco Privado PortuguêsAllco Finance GroupWaterford WedgwoodSaab AutomobileBearingPointTweeterChryslerGeneral MotorsEconomic CrisisIn Economic Uncertainty, Banks Don’t LoanoWant to Maintain LiquidityoNeed Either More Capital or Greater CertaintyNatural Business Tendency to NOT Spend During These TimesTARP Created to Encourage SpendingTARP BackgroundFundamental Part of the Emergency Economic Stabilization Act of 2008Gives Secretary of the Treasury Authority to Purchase Troubled AssetsoRestore LiquidityoImprove Financial StabilityOther Economic AssistanceoAutomotive IndustryoPrivate Companies (Toxic Assets)oFannie and FreddieoAIGTARP ContinuedReport Submitted to Congress Reporting the TARP’s Progressohttp://www.sigtarp.gov/reports/congress/2011/January2011_Quarterly_Report_to_Congress.pdfIf Short, Legislative Proposal to RecuperateoEnsure that National Debt Does Not IncreaseAIG In TroubleAmerican International GroupoInternational Insurance Agency in Over 130 CountriesoReported Losses of $99B in 2008oReported Losses of $11B in 2009Invested in High-Grade Residential Mortgage Backed SecuritiesSold Credit Default Swaps to Financial Institutions for Loans Rated AAASuffered Great Losses and Liquidity Issues due to Mortgage CrisisTARP and AIGNovember 25th, 2008oTARP Purchased $40B in Preferred Stocko%10/yr DividendsMarch 2nd, 2009oTARP Purchased $30B More in Preferred StockUsed Capital to Relieve Liquidity IssuesAIG Moving ForwardRepaid $9BPlans to RepayoTreasury to Sell Stock Gradually Over TimeoSold Several Subsidiaries•ALICO to MetLife for $16BNet Income of $8B in 2010Operational GoalsoReduce Risk in Investments and Credit Default SwapsoReduce Operational CostsoStrengthen Financial Position to Repay TaxpayersGM In TroubleGeneral MotorsoBuick, Cadillac, Chevrolet, GMC, Daewoo, Holden, Isuzu, Jiefang, Opel, Vauxhall, Wuling…oLocations in 31 CountriesDownturn in EconomyoReported Losses of $39B in 2007oReported Losses of $31B in 2008TARP and GMUS Treasury Purchased $51B in Common Stocko61% Stake in the CompanyReturned $23BUS Received Revenue of $700M to DateGM Moving ForwardReorganized Under Chapter 11 BankruptcyoPrimarily Used by Corporate EntitiesoCh. 13 Pertains to the Reorganization of Private IndividualsoCh. 7 Pertains to Liquidation BankruptciesListed on the NYSE on November 18th, 2010World’s Largest IPO of $23B“Repaid” Debt EarlyClaimed Ability due to Increase in Malibu and LaCrosse SalesUsed Federal Funds to Repay TARP DebtNet Income of $5B in 2010ConclusionActivity to Dateo928 Recipientso$619B Committed•27.3% Banks/Financial Institutions, Cap at $475B•14.1% Fannie and Freddie, No Cap•12% Auto Companies, Included in $475B Cap•Toxic Asset Purchases, Cap at $22.4Bo$564B Dispersedo$259B Returnedo$57B Total RevenueNotice – Did Not Cost $700BConclusion (Cont.)Was this program effective? Is this even measureable or quantifiable?Will the TARP encourage institutions to take more risks, knowing that the government will bail them out?oPros?oCons?Works Citedhttp://troubled-asset-relief-program.net/
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