00:01
All right, this is problem number eight from chapter 15 .6.
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It's asking us in 2015, richard foote, the last ceo of lehman brothers gave a talk in which, according to an article in the wall street journal, he outlined what called the perfect storm of events that led to the financial crisis, saying it all started with the government and policies that subsidized cheap loans for people to buy homes in order to help and chase the american dream.
00:21
A, briefly outlined the events that led to the financial crisis.
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Do you agree with fold that the events constitute a perfect storm? essentially would it have been difficult to anticipate.
00:34
So yeah, let's start with part a.
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And it's asking us the order of events.
00:39
And it's hard to exactly outween the order.
00:41
But let's start with housing market boom.
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So there's a big housing market boom.
00:49
And it's a great time to buy and everything's cheap.
00:52
But all the prices are also rising.
00:54
So everyone's like, oh, you know, it'll keep rising.
00:57
Why not just buy? then the introduction of mortgage -backed securities, which is like a security being some sort of financial asset that has its value linked to a mortgage.
01:11
So once someone pays off their mortgage, you get the return.
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And of course, it carries the risk of someone defaulting on their mortgage.
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Then the housing bubble burst.
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So i'm just going to do a little down arrow for the burst.
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And now mortgage -backed securities are worthless.
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And lots of big banks, such as lehman brothers, had tons and tons and tons of mortgage -backed securities that are now worthless, and they're now out a ton of money, and they go bankrupt...