The Panic of 2007 Collection February 27, 2009 Roger G. Powell Managing Director Investment Banking Financial Institutions Group Phone: 215-665-6687 Janney Montgomery Scott LLC 1.What is a financial panic? 2.What are the proximate causes of this one? 3.What is a probable outcome?
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The Panic of 2007
Collection February 27, 2009
Roger G. PowellManaging DirectorInvestment BankingFinancial Institutions GroupPhone: 215-665-6687
–noun 1.a sudden overwhelming fear, with or without cause, that produces hysterical or irrational
behavior, and that often spreads quickly through a group of persons or animals.2.an instance, outbreak, or period of such fear.
3.Finance. a sudden widespread fear concerning financial affairs leading to credit contraction and widespread sale of securities at depressed prices in an effort to acquire cash.
4.Slang. someone or something that is considered hilariously funny: The comedian was an
…sub prime mortgages were bundled into Mortgage-backed Securities
…which were bundled and carved into Collateralized Debt Obligations
…which were partially guaranteed by insurance companies
…which were sold around the world to banks, pension funds and other investors, soWhen sub prime mortgages began to default investors and their lenders could not see where the losses would land.
Everyone became suspect….
Liquidity Crisis
11? Service • Experience • Results
Sleeping with an elephant…..Pierre Trudeau, Prime Minister of Canada, once said that living next to the U.S.
“. . . is in some ways like sleeping with an elephant. No matter how friendly or temperate the beast, one is affected by every twitch and grunt.”
Changes in government behavior
may appear to be capricious or arbitrary
may cause large gains or losses for an individual or company
may shift operating parameters suddenly
So every private investor stops… and waits for the new rulebook.
Government Interventions
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What is a probable outcome?
13? Service • Experience • Results
Source: Dictionary.com.
What is a probable outcome?
There will be winners and losers….
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute." William Feather (1889 – 1991) The Cleveland Press
Increased regulation of financial transactions and institutions….
See “Blueprint for Modernization of Financial Regulation”U. S. Treasury, 2007
14? Service • Experience • Results
Source: Dictionary.com.
What are lessons for you and me?
1. Use debt wisely/ Debt to pay for college is an investment; debt to buy a fun, new wardrobe is not.
2. Never take on debt that you are not confident that you can pay even if something unexpected goes wrong for a while. Be especially sure that you can pay your credit card debt. It is expensive, and the failure to pay can cause you great problems later.
3. Save, save, save. It is the best investment you can make in yourself.
4. If something sounds too good to be true, it is. Look harder and ask for help in understanding why.
The most valuable things in life are not measured in monetary terms. The really important things are not houses and lands, stocks and bonds, automobiles and real estate, but friendships, trust, confidence, empathy, mercy, love and faith." Bertrand Russell, Philosopher (1872-1970)
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3 Secrets of Financial Success
The Greatest – Thrift: spend less than you make
The Next – Industry: whatever task you undertake, do it with energy and attention; work hard and work smart.
The Least – Talent: find your true skill and love and pursue it, making your daily task a pleasure.