Your uncle starts a restaurant, borrowing to fund his investment. The restaurant fails, and your uncle must shut down but still must pay his debt.
Your parents take out a loan to buy a house. Your father is transferred to a new city, and now your parents must sell the house. The value of the house has gone up during the time your family has lived there.
Your friend’s parents take out a loan to buy her a condo to live in while she is at college. Meanwhile, the housing market plummets. By the time your friend leaves college, the condo is worth significantly less than the value of the loan.
You finish college with an honors degree in a field with many good job prospects and with $25,000 in student loans that you must repay.
Your university decides to sell several commercial buildings in the middle of town in order to upgrade buildings on campus.
A company decides to sell its large and valuable art collection because other asset prices on its balance sheet have fallen below a critical level, forcing creditors to call in their loans to the company because of provisions written into the original loan contract.
A company decides to issue more stock in order to voluntarily pay off some of its debt.
A shadow bank must sell its holdings of corporate bonds because falling asset prices have led to a default on the terms of its loans with some creditors.
In the following figure showing the Case–Shiller U.S. Home Price Index from 2000 to 2010, did housing prices peak before or after the financial crisis in the United States? Explain your answer.
In Figure 18-2, how many years after the Panic of 1893 did unemployment peak in the United States?
In Figure 18-2, how many years after the banking crisis of 1991 did unemployment peak in Sweden?
In 2007–2009, the Federal Reserve, acting as a lender of last resort, stepped in to provide funds when private markets were unable to do so. The Fed also took over many banks. In 2007, it seized 3 banks; in 2008, it seized 25 banks; and in 2009, it seized 140 banks. Go to www.fdic.gov; under “Bank Closing Information,” click on “Complete Failed Bank List.” Then count the number of banks that the Federal Reserve has seized so far this year. Have bank failures decreased since the crisis in 2008?
What was the difference in borrowing costs for these corporate borrowers and the federal government?
Go to www.research.stlouisfed.org/fred2/categories/22. Click on the link for “Treasury constant maturity” and find the most recent interest rate on 10-year U.S. Treasury bonds. Then go back to the original web page and click on the link for “Corporate bonds” and find the rate for Baa corporate bonds. What is the current difference in borrowing costs between corporate borrowers and the U.S. government?
Has this difference in borrowing costs increased or decreased since the height of the financial crisis in October of 2008? Why?
Which bank has the largest consolidated assets?
Which bank has the largest domestic assets?
What percent of U.S. GDP are the domestic assets of the bank listed in part b? (Hint: You can find U.S. GDP at http://research.stlouisfed.org/fred2/series/GDP?cid=106 using the links “Gross Domestic Product (GDP)” and then “Current-dollar and ‘real’ GDP.”)
President Roosevelt was sworn in on March 4, 1933. What was one of his first official acts in response to the banking crisis?
How many banks suspended operations during 1933?
Who was the chief proponent of federal deposit insurance in Congress?
How much coverage did the temporary fund for federal deposit insurance provide?
How much of its capital did LTCM lose in 1998?
Why did the GAO conclude that LTCM was able to establish leveraged trading positions of a size that posed systemic risk to the banking system?
What was the recommendation of the President’s Working Group regarding the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC)?