Finances in crisis
BOZSÓ Zoltán
The reasons
• Economic cycles
Economic cycles
The reasons
• Economic cycles
• Subprime mortgage crisis in the US and
elsewhere
Subprime mortgage crisis
Brokers selling mortgage to borrowers
Bank securitizing mortgage contracts (MBSs) and repackaging
Sold to investors globally
The crisis kicks in…
• Number of defaults drastically increased
• Value of real estate dropped
… and the vicious circle started
• Foreclosures
• Value of mortgage backed securities down
• Lehman Brothers, AIG, banks worldwide
The reasons
• Economic cycles
• Subprime mortgage crisis in the US and elsewhere
• High sovereign debt
Sovereign debt as % of GDP
Sovereign debt as % of GDP
Country 2006 2011
Austria 66 80
Czech Republic 33 48
France 71 100
Germany 70 87
Greece 117 170
Hungary 72 85
Ireland 29 114
Italy 117 120
Poland 55 63
Portugal 77 118
Spain 46 75
UK 46 98
US 66 103
Sovereign debt as % of GDP
Country 2006 2011
Austria 66 80
Czech Republic 33 48
France 71 100
Germany 70 87
Greece 117 170
Hungary 72 85
Ireland 29 114
Italy 117 120
Poland 55 63
Portugal 77 118
Spain 46 75
UK 46 98
US 66 103
Why was it so bad?
• Technology
• A global marketplace
• No funds for anti-cyclical spending
• Long term, strategic changes
Where are we now?
• Real estate prices normalized
• Financial institutions avoided the worst
Citibank share price
AIG share price
Where are we now?
• Real estate prices normalized
• Financial institutions avoided the worst
Credit default swaps – 5 years
Country %
