Financial Crisis Flashcards

Flashcards based on lecture notes about the 2008 financial crisis.

Recession

A contracting economy that lasts for at least six months.

Leverage

The use of borrowed money to increase financial gains.

Mortgage

A loan for the purchase of property.

Collateralized Debt Obligation (CDO) / Mortgage-Backed Security

A collection of mortgages that can be sold or traded.

Credit Score (FICO score)

A number used to predict a borrower's ability to repay a loan (300-850).

Default

Failure to repay a loan on time.

Interest Rate

The amount that a lender charges to borrow money.

Subprime Lending

The practice of giving loans to someone with a low credit score.

Adjustable-Rate Mortgage (ARM)

A mortgage whose interest rate changes over time.

Predatory Lending

The use of unfair or deceptive practices to convince borrowers to take out a loan.

Bubble

A rapid and unsustainable increase in the price of a commodity.

Foreclosure

A bank's repossession of a property after a borrower defaults on a loan.

Underwater Mortgage

When the amount owed on a mortgage is more than the market value of the property.

Troubled Asset Relief Program (TARP) / "The Bailout"

A $700 billion government program to stabilize the US financial industry (October 2008).

Short

To bet money that a stock's value will decrease.

Credit Default Swap

Insurance against loan default or credit rating downgrade.

The 2008 Financial Crisis

A global economic crisis set off by the collapse of the US housing market.