Crisis and Financial Systems: Overview of Historical Events

These flashcards cover key concepts related to financial crises, particularly the savings and loan crisis and the global financial crisis, highlighting important terms and their definitions.

Savings and Loan Crisis

A financial crisis in the 1980s involving the collapse of over 1,000 savings and loan institutions due to risky investments and poor management.

Global Financial Crisis

A severe worldwide economic crisis that occurred in the late 2000s, triggered by the collapse of the housing market and excessive risk-taking in the financial sector.

.com Bubble

A period of excessive speculation in the late 1990s and early 2000s, characterized by the rapid rise and fall of tech stock prices.

Adjustable Rate Mortgages (ARMs)

Mortgages where the interest rate is fixed for an initial period and then adjusts periodically based on market conditions.

Subprime Loans

Loans offered to borrowers with poor credit histories who pose a higher risk of default.

Loan to Value (LTV) Ratio

A financial term used by lenders to express the ratio of a loan to the value of an asset purchased.

Securitization

The process of pooling various types of debt and selling them as consolidated financial instruments to investors.

Collateralized Debt Obligations (CDOs)

A type of structured asset-backed security that pools together cash-flow generating assets and repackages them into tranches.

Moral Hazard

The situation where a party is more likely to take risks because the negative consequences of those risks will be borne by others.

Adverse Selection

A situation where sellers have information that buyers do not have, or vice versa, about a product's quality, leading to market inefficiencies.

Credit Default Swaps (CDS)

Financial derivatives that allow an investor to

d e f e n d the debt against default.

Contract that allows the buyer to transfer the credit exposure of fixed income products, providing insurance against default.

Financial Crisis

A broad term that encompasses situations in which financial assets lose a large part of their nominal value.

Great Depression

A severe worldwide economic depression that took place during the 1930s, marked by widespread unemployment and loss of financial stability.

Federal Reserve (Fed)

The central banking system of the United States, responsible for regulating the monetary and financial system.

Irrational Exuberance

A term popularized by Alan Greenspan, referring to the phenomenon where investors become overly enthusiastic about the potential of a market, resulting in inflated prices.

Case-Shiller Home Price Index

An index that measures the changes in the prices of residential properties in the United States.