Deciphering the Liquidity and Credit Crunch 2007-2008 (FRM Part 1 – Book 1 – Chapter 7)

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After completing this reading you should be able to:
Describe the key factors that contributed to the lending boom housing frenzy.
Explain the banking industry trends leading up to the financial crisis and assess the triggers for the liquidity crisis.
Describe how securitized and structured products were used by investor groups and describe the consequences of their increased use.
Describe the economic mechanisms through which the mortgage crisis amplified into a financial crisis.
Distinguish between funding liquidity and market liquidity and explain how the evaporation of liquidity can lead to a financial crisis.
Analyze how an increase in counterparty credit risk can generate additional funding needs and possible systemic risk.

0:00 Introduction
0:42 Learning Objectives After completing this reading you should be able to
1:41 What's a credit boom?
3:50 What happened in the lead up to the 2007/2008 financial crisis?
7:19 The Trends of Banking Industry Leading up to the Liquidity Squeeze
9:28 Securitization: Credit Protection, Pooling, and Tranching Risk
17:19 Funding Liquidity Risk versus Market Liquidity Risk
19:36 More Problems: Maturity Mismatch
21:29 Consequences: Cheap Credit and the Housing Boom
24:03 The Unfolding of the Crisis: Events Logbook
25:41 Asset-Backed Commercial Paper
26:40 More on Repo, Libor, and Federal Fund Markets
29:22 Continuing Write-Downs of Mortgage-related Securities
31:08 The Monoline Insurers
32:07 Notable Losers: Bear Stearns
33:54 Notable Losers: Government-Sponsored Enterprises
34:10 Central Banks Step Forward
34:52 Book 1 - Foundations of risk management Chapter 7