Divyanshu67/squad_v2 huggingface dataset:
Financial_crisis_of_2007%E2%80%9308

As part of the housing and credit booms, the number of financial agreements called mortgage-backed securities (MBS) and collateralized debt obligations (CDO), which derived their value from mortgage payments and housing prices, greatly increased. Such financial innovation enabled institutions and investors around the world to invest in the U.S. housing market. As housing prices declined, major global financial institutions that had borrowed and invested heavily in subprime MBS reported significant losses.

Question: What are MBS as related to the housing and credit booms?
Answer: mortgage-backed securities

Question: What are CDO as related to the housing and credit booms?
Answer: collateralized debt obligations

Question: When housing prices declined, who reported significant losses from being heavily invested in subprime MBS?
Answer: major global financial institutions

Question: Who could invest in the U.S. housing market through MBS and CDO?
Answer: institutions and investors around the world

Question: MBS and CDO derive their value from?
Answer: mortgage payments and housing prices
Financial_crisis_of_2007%E2%80%9308

Falling prices also resulted in homes worth less than the mortgage loan, providing a financial incentive to enter foreclosure. The ongoing foreclosure epidemic that began in late 2006 in the U.S. continues to drain wealth from consumers and erodes the financial strength of banking institutions. Defaults and losses on other loan types also increased significantly as the crisis expanded from the housing market to other parts of the economy. Total losses are estimated in the trillions of U.S. dollars globally.

Question: What year did the foreclosure epidemic begin?
Answer: late 2006

Question: How much are total losses estimated to be from falling home prices?
Answer: trillions of U.S. dollars

Question: What is the financial incentive when a home is worth less than the mortgage loan?
Answer: foreclosure

Question: What other financial instruments had significant defaults and losses as a result of the crisis expanding from housing to other parts of the economy?
Answer: other loan types

Question: What continues to drain consumer wealth and erode the strength of banks?
Answer: foreclosure epidemic
Financial_crisis_of_2007%E2%80%9308

While the housing and credit bubbles were building, a series of factors caused the financial system to both expand and become increasingly fragile, a process called financialization. U.S. Government policy from the 1970s onward has emphasized deregulation to encourage business, which resulted in less oversight of activities and less disclosure of information about new activities undertaken by banks and other evolving financial institutions. Thus, policymakers did not immediately recognize the increasingly important role played by financial institutions such as investment banks and hedge funds, also known as the shadow banking system. Some experts believe these institutions had become as important as commercial (depository) banks in providing credit to the U.S. economy, but they were not subject to the same regulations.

Question: What institutions comprise the shadow banking system?
Answer: investment banks and hedge funds

Question: What institutions are not subject to the same regulations as commercial banks?
Answer: investment banks and hedge funds

Question: What process caused the financial system to both expand and become fragile?
Answer: financialization

Question: What policy has U.S. Government emphasized from the 1970's onward?
Answer: deregulation

Question: Since the 1970's, what has emphasized deregulation to encourage business, but resulted in less oversight and less disclosure?
Answer: U.S. Government policy
Financial_crisis_of_2007%E2%80%9308

These institutions, as well as certain regulated banks, had also assumed significant debt burdens while providing the loans described above and did not have a financial cushion sufficient to absorb large loan defaults or MBS losses. These losses impacted the ability of financial institutions to lend, slowing economic activity. Concerns regarding the stability of key financial institutions drove central banks to provide funds to encourage lending and restore faith in the commercial paper markets, which are integral to funding business operations. Governments also bailed out key financial institutions and implemented economic stimulus programs, assuming significant additional financial commitments.

Question: Some regulated banks did not have sufficient financial cushions in place to absorb what losses as a result of the financial crisis of 2007?
Answer: MBS

Question: What was a consequence of the large loan defaults and MBS losses in 2007?
Answer: slowing economic activity

Question: Who provided funds to encourage lending and restore faith in commercial banks in the aftermath of the financial crisis of 2007?
Answer: central banks

Question: Who bailed out key financial institutions and implemented economic stimulus programs as an answer to the financial crisis of 2007?
Answer: Governments

Question: What impacted the ability of financial institutions to lend in the financial crisis of 2007?
Answer: large loan defaults or MBS losses
Financial_crisis_of_2007%E2%80%9308

The U.S. Financial Crisis Inquiry Commission reported its findings in January 2011. It concluded that "the crisis was avoidable and was caused by: widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages; dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk; an explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis; key policy makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw; and systemic breaches in accountability and ethics at all levels".

Question: When did the U.S. Financial Crisis Inquiry Commission report its findings?
Answer: January 2011

Question: What was one of  the conclusions of the U.S. Financial Crisis Inquiry Commission regarding the financial crisis of 2007?
Answer: the crisis was avoidable and was caused by: widespread failures in financial regulation

Question: What agency failed to stem the tide of toxic mortgages contributing to the financial crisis of 2007?
Answer: Federal Reserve

Question: Who was not prepared for the financial crisis in 2007 by lacking a full understanding of the financial system?
Answer: key policy makers

Question: Which business sector contributed to the financial crisis by acting recklessly and taking on too much risk?
Answer: financial firms
Financial_crisis_of_2007%E2%80%9308

During a period of tough competition between mortgage lenders for revenue and market share, and when the supply of creditworthy borrowers was limited, mortgage lenders relaxed underwriting standards and originated riskier mortgages to less creditworthy borrowers. In the view of some analysts, the relatively conservative government-sponsored enterprises (GSEs) policed mortgage originators and maintained relatively high underwriting standards prior to 2003. However, as market power shifted from securitizers to originators and as intense competition from private securitizers undermined GSE power, mortgage standards declined and risky loans proliferated. The worst loans were originated in 2004–2007, the years of the most intense competition between securitizers and the lowest market share for the GSEs.

Question: What caused mortgage lenders to relax underwriting standards and approve riskier mortgages?
Answer: tough competition

Question: In what year were high underwriting standards relaxed?
Answer: 2003

Question: What years were the worst mortgage loans originated?
Answer: 2004–2007

Question: What years had the most intense competition between securitizers and the lowest market share for GSEs?
Answer: 2004–2007

Question: Who policed mortgage originators and maintained relatively high standards prior to 2003?
Answer: government-sponsored enterprises (GSEs)
Financial_crisis_of_2007%E2%80%9308

The majority report of the Financial Crisis Inquiry Commission, written by the six Democratic appointees, the minority report, written by 3 of the 4 Republican appointees, studies by Federal Reserve economists, and the work of several independent scholars generally contend that government affordable housing policy was not the primary cause of the financial crisis. Although they concede that governmental policies had some role in causing the crisis, they contend that GSE loans performed better than loans securitized by private investment banks, and performed better than some loans originated by institutions that held loans in their own portfolios. Paul Krugman has even claimed that the GSE never purchased subprime loans – a claim that is widely disputed.

Question: How many Democratic appointees wrote the majority report of the Financial Crisis Inquiry Commission?
Answer: six

Question: Who claimed that the GSE never purchased subprime loans - a claim that is widely disputed?
Answer: Paul Krugman

Question: Several reports written by various agencies  concluded that which policy was not the primary cause of the financial crisis?
Answer: government affordable housing policy

Question: How many Republican appointees wrote the minority report of the Financial Crisis Inquiry Commission?
Answer: 4

Question: According to reports, which loans performed better than some loans securitized by private investment banks?
Answer: GSE loans
Financial_crisis_of_2007%E2%80%9308

In his dissent to the majority report of the Financial Crisis Inquiry Commission, American Enterprise Institute fellow Peter J. Wallison stated his belief that the roots of the financial crisis can be traced directly and primarily to affordable housing policies initiated by HUD in the 1990s and to massive risky loan purchases by government-sponsored entities Fannie Mae and Freddie Mac. Later, based upon information in the SEC's December 2011 securities fraud case against 6 ex-executives of Fannie and Freddie, Peter Wallison and Edward Pinto estimated that, in 2008, Fannie and Freddie held 13 million substandard loans totaling over $2 trillion.

Question: Which government-sponsored entities had massive risky loan purchases?
Answer: Fannie Mae and Freddie Mac

Question: How many estimated substandard loans did Fannie and Freddie have in 2008? 
Answer: 13 million

Question: What was the value of the estimated 13 million substandard loans held by Fannie and Freddie in 2008?
Answer: over $2 trillion

Question: How many ex-executives of Fannie and Freddie were named in the SEC's December 2011 securities fraud case?
Answer: 6

Question: Peter J. Wallison believes that the one of the roots of the financial crisis can be traced to affordable housing policies by which agency in the 1990s?
Answer: HUD
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In the early and mid-2000s, the Bush administration called numerous times for investigation into the safety and soundness of the GSEs and their swelling portfolio of subprime mortgages. On September 10, 2003, the House Financial Services Committee held a hearing at the urging of the administration to assess safety and soundness issues and to review a recent report by the Office of Federal Housing Enterprise Oversight (OFHEO) that had uncovered accounting discrepancies within the two entities. The hearings never resulted in new legislation or formal investigation of Fannie Mae and Freddie Mac, as many of the committee members refused to accept the report and instead rebuked OFHEO for their attempt at regulation. Some believe this was an early warning to the systemic risk that the growing market in subprime mortgages posed to the U.S. financial system that went unheeded.

Question: Which administration called for investigation into the soundness of GSEs in the early and mid-2000s?
Answer: Bush administration

Question: Who uncovered accounting discrepancies in Fannie Mae and Freddie Mac?
Answer: Office of Federal Housing Enterprise Oversight (OFHEO)

Question: On what date did the House Financial Services Committee hold a hearing to assess safety and soundness issues regarding Fannie Mae and Freddie Mac?
Answer: September 10, 2003

Question: What was the result of the House Financial Services Committee on September 10, 2003 regarding Fannie Mae and Freddie Mac?
Answer: The hearings never resulted in new legislation or formal investigation

Question: Who rebuked OFHEO in 2003 for their attempt at regulation of Fannie Mae and Freddie Mac?
Answer: House Financial Services Committee
Financial_crisis_of_2007%E2%80%9308

A 2000 United States Department of the Treasury study of lending trends for 305 cities from 1993 to 1998 showed that $467 billion of mortgage lending was made by Community Reinvestment Act (CRA)-covered lenders into low and mid level income (LMI) borrowers and neighborhoods, representing 10% of all U.S. mortgage lending during the period. The majority of these were prime loans. Sub-prime loans made by CRA-covered institutions constituted a 3% market share of LMI loans in 1998, but in the run-up to the crisis, fully 25% of all sub-prime lending occurred at CRA-covered institutions and another 25% of sub-prime loans had some connection with CRA. In addition, an analysis by the Federal Reserve Bank of Dallas in 2009, however, concluded that the CRA was not responsible for the mortgage loan crisis, pointing out that CRA rules have been in place since 1995 whereas the poor lending emerged only a decade later. Furthermore, most sub-prime loans were not made to the LMI borrowers targeted by the CRA, especially in the years 2005–2006 leading up to the crisis. Nor did it find any evidence that lending under the CRA rules increased delinquency rates or that the CRA indirectly influenced independent mortgage lenders to ramp up sub-prime lending.

Question: What was the value of mortgage lending made by Community Reinvestment Act covered lenders to low and mid level income borrowers and neighborhoods from 1993-1998?
Answer: $467 billion

Question: What percent of mortgage lending was made by Community Reinvestment Act covered lenders from 1993 to 1998?
Answer: 10%

Question: What does CRA stand for?
Answer: Community Reinvestment Act

Question: What percent of sub-prime lending occurred at CRA-covered institutions in the run-up to the financial crisis?
Answer: 25%

Question: What percent of sub-prime loans had some connection with CRA in the run-up to the financial crisis?
Answer: 25%
Financial_crisis_of_2007%E2%80%9308

To other analysts the delay between CRA rule changes (in 1995) and the explosion of subprime lending is not surprising, and does not exonerate the CRA. They contend that there were two, connected causes to the crisis: the relaxation of underwriting standards in 1995 and the ultra-low interest rates initiated by the Federal Reserve after the terrorist attack on September 11, 2001. Both causes had to be in place before the crisis could take place. Critics also point out that publicly announced CRA loan commitments were massive, totaling $4.5 trillion in the years between 1994 and 2007. They also argue that the Federal Reserve’s classification of CRA loans as “prime” is based on the faulty and self-serving assumption that high-interest-rate loans (3 percentage points over average) equal “subprime” loans.

Question: When did CRA make rule changes to relax underwriting standards?
Answer: 1995

Question: How much were CRA loan commitments between 1994 and 2007?
Answer: $4.5 trillion

Question: What was the Federal Reserve's assumption regarding what makes a loan subprime?
Answer: high-interest-rate loans (3 percentage points over average)

Question: How did the Federal Reserve classify CRA loans?
Answer: prime

Question: When were ultra-low interest rates initiated by the Federal Reserve?
Answer: after the terrorist attack on September 11, 2001
Financial_crisis_of_2007%E2%80%9308

Countering Krugman, Peter J. Wallison wrote: "It is not true that every bubble—even a large bubble—has the potential to cause a financial crisis when it deflates." Wallison notes that other developed countries had "large bubbles during the 1997–2007 period" but "the losses associated with mortgage delinquencies and defaults when these bubbles deflated were far lower than the losses suffered in the United States when the 1997–2007 [bubble] deflated." According to Wallison, the reason the U.S. residential housing bubble (as opposed to other types of bubbles) led to financial crisis was that it was supported by a huge number of substandard loans – generally with low or no downpayments.

Question: Peter J. Wallison believes that the huge number of these loans led to the financial crisis?
Answer: substandard

Question: What type downpayments do substandard loans generally have?
Answer: low or no downpayments

Question: According to Peter J. Wallison, why did the U.S. residential housing bubble led to financial crisis?
Answer: it was supported by a huge number of substandard loans

Question: Other countries had large residential housing bubbles that deflated during what years?
Answer: 1997–2007

Question: Peter J. Wallison's conclusions regarding the financial crisis are not in agreement with this economist's views?
Answer: Krugman
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Krugman's contention (that the growth of a commercial real estate bubble indicates that U.S. housing policy was not the cause of the crisis) is challenged by additional analysis. After researching the default of commercial loans during the financial crisis, Xudong An and Anthony B. Sanders reported (in December 2010): "We find limited evidence that substantial deterioration in CMBS [commercial mortgage-backed securities] loan underwriting occurred prior to the crisis." Other analysts support the contention that the crisis in commercial real estate and related lending took place after the crisis in residential real estate. Business journalist Kimberly Amadeo reports: "The first signs of decline in residential real estate occurred in 2006. Three years later, commercial real estate started feeling the effects. Denice A. Gierach, a real estate attorney and CPA, wrote:

Question: Who believed that the growth of the commercial real estate bubble indicated that U.S. housing policy was not the cause of the crisis?
Answer: Krugman

Question: When did Xudong An and Anthony B. Sanders issue a report about commercial mortgage-backed securities?
Answer: December 2010

Question: According to business journalist Kimberly Amadeo, when did the first signs of decline in real estate occur?
Answer: 2006

Question: What are CMBS?
Answer: commercial mortgage-backed securities

Question: According to most analysts, what crisis took place after the crisis in residential real estate?
Answer: the crisis in commercial real estate
Financial_crisis_of_2007%E2%80%9308

In a Peabody Award winning program, NPR correspondents argued that a "Giant Pool of Money" (represented by $70 trillion in worldwide fixed income investments) sought higher yields than those offered by U.S. Treasury bonds early in the decade. This pool of money had roughly doubled in size from 2000 to 2007, yet the supply of relatively safe, income generating investments had not grown as fast. Investment banks on Wall Street answered this demand with products such as the mortgage-backed security and the collateralized debt obligation that were assigned safe ratings by the credit rating agencies.

Question: What is one investment assigned safe ratings by the credit rating agencies?
Answer: collateralized debt obligation

Question: How much was invested worldwide in fixed income investments?
Answer: $70 trillion

Question: How much did the pool of money invested worldwide in fixed income investments grow in size from 2000 to 2007?
Answer: roughly doubled in size

Question: What is an example of a product Wall Street invented to answer the demand for income generating investments?
Answer: mortgage-backed security

Question: In the 2000s, investors were seeking higher yields than those offered by this investment?
Answer: U.S. Treasury bonds
Financial_crisis_of_2007%E2%80%9308

The collateralized debt obligation in particular enabled financial institutions to obtain investor funds to finance subprime and other lending, extending or increasing the housing bubble and generating large fees. This essentially places cash payments from multiple mortgages or other debt obligations into a single pool from which specific securities draw in a specific sequence of priority. Those securities first in line received investment-grade ratings from rating agencies. Securities with lower priority had lower credit ratings but theoretically a higher rate of return on the amount invested.

Question: What is the name of the securities that enabled financial institutions to obtain investor funds to finance subprime?
Answer: collateralized debt obligation

Question: What was the outcome of collateralized debt obligations?
Answer: extending or increasing the housing bubble

Question: What type ratings did securities first in line receive from rating agencies?
Answer: investment-grade ratings

Question: What type pool do collateralized debt obligations place their payments from mortgages into?
Answer: single pool

Question: What securities had lower credit ratings but potentially a higher rate of return?
Answer: Securities with lower priority
Financial_crisis_of_2007%E2%80%9308

By September 2008, average U.S. housing prices had declined by over 20% from their mid-2006 peak. As prices declined, borrowers with adjustable-rate mortgages could not refinance to avoid the higher payments associated with rising interest rates and began to default. During 2007, lenders began foreclosure proceedings on nearly 1.3 million properties, a 79% increase over 2006. This increased to 2.3 million in 2008, an 81% increase vs. 2007. By August 2008, 9.2% of all U.S. mortgages outstanding were either delinquent or in foreclosure. By September 2009, this had risen to 14.4%.

Question: How much had average U.S. housing prices declined by September 2008?
Answer: over 20%

Question: When was the peak of U.S. housing prices?
Answer: mid-2006

Question: How many foreclosure proceedings were initiated by lenders in 2007?
Answer: nearly 1.3 million

Question: What was the percentage increase on foreclosure proceedings from 2007 to 2008?
Answer: 81%

Question: How many U.S. mortgages were either delinquent or in foreclosure by September 2009?
Answer: 14.4%
Financial_crisis_of_2007%E2%80%9308

Lower interest rates encouraged borrowing. From 2000 to 2003, the Federal Reserve lowered the federal funds rate target from 6.5% to 1.0%. This was done to soften the effects of the collapse of the dot-com bubble and the September 2001 terrorist attacks, as well as to combat a perceived risk of deflation. As early as 2002 it was apparent that credit was fueling housing instead of business investment as some economists went so far as to advocate that the Fed "needs to create a housing bubble to replace the Nasdaq bubble". Moreover, empirical studies using data from advanced countries show that excessive credit growth contributed greatly to the severity of the crisis.

Question: Was was the federal funds rate target lowered to by the Federal Reserve in 2003?
Answer: 1.0%

Question: What is one reason the Federal Reserve lowered the federal funds rate target to 1.0% in 2003?
Answer: to combat a perceived risk of deflation

Question: In the early 2000s, what type bubble did some economists believe the Fed needed to create to replace the Nasdaq bubble?
Answer: a housing bubble

Question: What contributed greatly to the severity of the financial crisis of 2007?
Answer: excessive credit growth

Question: What encouraged borrowing from 2000 to 2003?
Answer: Lower interest rates
Financial_crisis_of_2007%E2%80%9308

Bernanke explained that between 1996 and 2004, the U.S. current account deficit increased by $650 billion, from 1.5% to 5.8% of GDP. Financing these deficits required the country to borrow large sums from abroad, much of it from countries running trade surpluses. These were mainly the emerging economies in Asia and oil-exporting nations. The balance of payments identity requires that a country (such as the U.S.) running a current account deficit also have a capital account (investment) surplus of the same amount. Hence large and growing amounts of foreign funds (capital) flowed into the U.S. to finance its imports.

Question: Per Bernanke, how much did the U.S. current account deficit increase between 1996 and 2004?
Answer: $650 billion

Question: What percentage of GDP was the U.S. current account deficit in 2004?
Answer: 5.8%

Question: What emerging economies did the U.S. borrow money from between 1996 and 2004 to finance its imports?
Answer: Asia and oil-exporting nations

Question: What type account is needed by the U.S. to balance an account deficit?
Answer: capital account

Question: Where did the U.S. obtain capital to finance its imports?
Answer: foreign funds
Financial_crisis_of_2007%E2%80%9308

The Fed then raised the Fed funds rate significantly between July 2004 and July 2006. This contributed to an increase in 1-year and 5-year adjustable-rate mortgage (ARM) rates, making ARM interest rate resets more expensive for homeowners. This may have also contributed to the deflating of the housing bubble, as asset prices generally move inversely to interest rates, and it became riskier to speculate in housing. U.S. housing and financial assets dramatically declined in value after the housing bubble burst.

Question: When did the Fed begin raising Fed funds rate significantly?
Answer: July 2004

Question: What does ARM stand for:
Answer: adjustable-rate mortgage

Question: How do asset prices generally move in relation to interest rates?
Answer: inversely

Question: Beginning in July 2004, what did the Fed do to make ARM rates more expensive for homeowners?
Answer: raised the Fed funds rate

Question: How did U.S. housing and financial assets react to the housing bubble burst?
Answer: dramatically declined in value
Financial_crisis_of_2007%E2%80%9308

Testimony given to the Financial Crisis Inquiry Commission by Richard M. Bowen III on events during his tenure as the Business Chief Underwriter for Correspondent Lending in the Consumer Lending Group for Citigroup (where he was responsible for over 220 professional underwriters) suggests that by the final years of the U.S. housing bubble (2006–2007), the collapse of mortgage underwriting standards was endemic. His testimony stated that by 2006, 60% of mortgages purchased by Citi from some 1,600 mortgage companies were "defective" (were not underwritten to policy, or did not contain all policy-required documents) – this, despite the fact that each of these 1,600 originators was contractually responsible (certified via representations and warrantees) that its mortgage originations met Citi's standards. Moreover, during 2007, "defective mortgages (from mortgage originators contractually bound to perform underwriting to Citi's standards) increased... to over 80% of production".

Question: Richard M. Bowen III testified to the Financial Crisis Inquiry Commission regarding his tenure at which financial institution?
Answer: Citigroup

Question: How many underwriters was Richard M. Bowen III responsible for at Citigroup?
Answer: 220

Question: What percent of mortgages purchased by Citigroup in 2006 were defective?
Answer: 60%

Question: In 2006, how many mortgage companies were contractually responsible to meet Citi's standards?
Answer: 1,600

Question: During 2007, what was the percent of defective mortgages not underwritten to Citi's standards?
Answer: over 80%
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In separate testimony to Financial Crisis Inquiry Commission, officers of Clayton Holdings—the largest residential loan due diligence and securitization surveillance company in the United States and Europe—testified that Clayton's review of over 900,000 mortgages issued from January 2006 to June 2007 revealed that scarcely 54% of the loans met their originators’ underwriting standards. The analysis (conducted on behalf of 23 investment and commercial banks, including 7 "too big to fail" banks) additionally showed that 28% of the sampled loans did not meet the minimal standards of any issuer. Clayton's analysis further showed that 39% of these loans (i.e. those not meeting any issuer's minimal underwriting standards) were subsequently securitized and sold to investors.

Question: Who was the largest residential loan due diligence and securitization surveillance company?
Answer: Clayton Holdings

Question: According to Clayton Holdings, how many mortgages issued from January 2006 to June 2007 met underwriting standards?
Answer: 54%

Question: How many investment and commercial banks were included in Clayton Holdings' analysis of January 2006 to June 2007 loans? 
Answer: 23

Question: Per Clayton's analysis of loans issued from January 2006 to June 2007, what percent of loans did not meet minimal standards of any issuer?
Answer: 28%

Question: How many mortgage loans did Clayton Holdings review in their analysis?
Answer: 900,000
Financial_crisis_of_2007%E2%80%9308

Predatory lending refers to the practice of unscrupulous lenders, enticing borrowers to enter into "unsafe" or "unsound" secured loans for inappropriate purposes. A classic bait-and-switch method was used by Countrywide Financial, advertising low interest rates for home refinancing. Such loans were written into extensively detailed contracts, and swapped for more expensive loan products on the day of closing. Whereas the advertisement might state that 1% or 1.5% interest would be charged, the consumer would be put into an adjustable rate mortgage (ARM) in which the interest charged would be greater than the amount of interest paid. This created negative amortization, which the credit consumer might not notice until long after the loan transaction had been consummated.

Question: What is the name for lending that entices borrowers to enter into unsafe secured loans?
Answer: Predatory lending

Question: What company used a classic bait-and-switch method by advertising low interest rates?
Answer: Countrywide Financial

Question: Which type loan would the consumer be put into instead of the 1% or 1.5% interest rate loan as advertised?
Answer: adjustable rate mortgage (ARM)

Question: What was created when the interest charged was greater than the amount of interest paid?
Answer: negative amortization

Question: What type predatory lending method did Countrywide Financial use?
Answer: classic bait-and-switch
Financial_crisis_of_2007%E2%80%9308

Countrywide, sued by California Attorney General Jerry Brown for "unfair business practices" and "false advertising" was making high cost mortgages "to homeowners with weak credit, adjustable rate mortgages (ARMs) that allowed homeowners to make interest-only payments". When housing prices decreased, homeowners in ARMs then had little incentive to pay their monthly payments, since their home equity had disappeared. This caused Countrywide's financial condition to deteriorate, ultimately resulting in a decision by the Office of Thrift Supervision to seize the lender.

Question: Who sued Countrywide for unfair business practices and false advertising?
Answer: California Attorney General Jerry Brown

Question: What type mortgages allowed homeowners to make interest-only payments?
Answer: adjustable rate mortgages (ARMs)

Question: What happened to home equity when housing prices decreased?
Answer: disappeared

Question: Who made the decision to seize Countrywide after their financial condition deteriorated?
Answer: Office of Thrift Supervision

Question: What type credit did borrowers obtaining mortgages from Countrywide have?
Answer: weak credit
Financial_crisis_of_2007%E2%80%9308

Critics such as economist Paul Krugman and U.S. Treasury Secretary Timothy Geithner have argued that the regulatory framework did not keep pace with financial innovation, such as the increasing importance of the shadow banking system, derivatives and off-balance sheet financing. A recent OECD study suggest that bank regulation based on the Basel accords encourage unconventional business practices and contributed to or even reinforced the financial crisis. In other cases, laws were changed or enforcement weakened in parts of the financial system. Key examples include:

Question: What economist believed that regulations did not keep up with financial innovation?
Answer: Paul Krugman

Question: Who was the U.S. Treasury Secretary dealing with the aftermath of the financial crisis of 2007?
Answer: Timothy Geithner

Question: Which group's study suggested that Basel accords encourage unconventional business practices?
Answer: OECD

Question: It has been argued that what did not keep up with financial innovation?
Answer: regulatory framework

Question: What accords possibly contributed to or reinforced the financial crisis?
Answer: Basel
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Prior to the crisis, financial institutions became highly leveraged, increasing their appetite for risky investments and reducing their resilience in case of losses. Much of this leverage was achieved using complex financial instruments such as off-balance sheet securitization and derivatives, which made it difficult for creditors and regulators to monitor and try to reduce financial institution risk levels. These instruments also made it virtually impossible to reorganize financial institutions in bankruptcy, and contributed to the need for government bailouts.

Question: What did financial institutions do prior to the crisis?
Answer: became highly leveraged

Question: What type financial instruments are off-balance sheet securitization and derivatives?
Answer: complex

Question: Who bailed out financial institutions?
Answer: government

Question: Which option was nearly impossible for financial institutions to reorganize under?
Answer: bankruptcy

Question: What are the type financial instruments that were difficult for creditors and regulators to monitor?
Answer: complex financial instruments
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From 2004 to 2007, the top five U.S. investment banks each significantly increased their financial leverage (see diagram), which increased their vulnerability to a financial shock. Changes in capital requirements, intended to keep U.S. banks competitive with their European counterparts, allowed lower risk weightings for AAA securities. The shift from first-loss tranches to AAA tranches was seen by regulators as a risk reduction that compensated the higher leverage. These five institutions reported over $4.1 trillion in debt for fiscal year 2007, about 30% of USA nominal GDP for 2007. Lehman Brothers went bankrupt and was liquidated, Bear Stearns and Merrill Lynch were sold at fire-sale prices, and Goldman Sachs and Morgan Stanley became commercial banks, subjecting themselves to more stringent regulation. With the exception of Lehman, these companies required or received government support. Lehman reported that it had been in talks with Bank of America and Barclays for the company's possible sale. However, both Barclays and Bank of America ultimately declined to purchase the entire company.

Question: How many U.S. investment banks significantly increased their financial leverage from 2004 to 2007?
Answer: five

Question: U.S. investment banks Increased their financial leverage and also increased their vulnerability to what?
Answer: financial shock

Question: Changes in what intended to keep U.S. banks competitive with their European counterparts?
Answer: capital requirements

Question: How much debt did the top five U.S. investment banks report in fiscal year 2007?
Answer: over $4.1 trillion

Question: What financial institution went bankrupt and was liquidated in 2007?
Answer: Lehman Brothers
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Behavior that may be optimal for an individual (e.g., saving more during adverse economic conditions) can be detrimental if too many individuals pursue the same behavior, as ultimately one person's consumption is another person's income. Too many consumers attempting to save (or pay down debt) simultaneously is called the paradox of thrift and can cause or deepen a recession. Economist Hyman Minsky also described a "paradox of deleveraging" as financial institutions that have too much leverage (debt relative to equity) cannot all de-leverage simultaneously without significant declines in the value of their assets.

Question: What is an example of something that can be detrimental if too many individuals pursue the same behavior?
Answer: saving more during adverse economic conditions

Question: What is it called when too many consumers attempt to save or pay down debt at the same time?
Answer: paradox of thrift

Question: What will happen if too many consumers save or pay down debt simultaneously?
Answer: can cause or deepen a recession

Question: Who is the economist who described a "paradox of deleveraging"?
Answer: Hyman Minsky

Question: Financial institutions cannot all de-leverage simultaneously without a decline in the value of this?
Answer: their assets
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During April 2009, U.S. Federal Reserve vice-chair Janet Yellen discussed these paradoxes: "Once this massive credit crunch hit, it didn’t take long before we were in a recession. The recession, in turn, deepened the credit crunch as demand and employment fell, and credit losses of financial institutions surged. Indeed, we have been in the grips of precisely this adverse feedback loop for more than a year. A process of balance sheet deleveraging has spread to nearly every corner of the economy. Consumers are pulling back on purchases, especially on durable goods, to build their savings. Businesses are cancelling planned investments and laying off workers to preserve cash. And, financial institutions are shrinking assets to bolster capital and improve their chances of weathering the current storm. Once again, Minsky understood this dynamic. He spoke of the paradox of deleveraging, in which precautions that may be smart for individuals and firms—and indeed essential to return the economy to a normal state—nevertheless magnify the distress of the economy as a whole."

Question: Who was the U.S. Federal Reserve vice-chair in April 2009?
Answer: Janet Yellen

Question: What happened soon after the massive credit crunch hit?
Answer: we were in a recession

Question: What deepened the credit crunch when demand and employment fell?
Answer: recession

Question: What was one of the actions businesses took to preserve cash?
Answer: cancelling planned investments

Question: What occurred in nearly every corner of the economy after the financial crisis of 2007?
Answer: balance sheet deleveraging
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The term financial innovation refers to the ongoing development of financial products designed to achieve particular client objectives, such as offsetting a particular risk exposure (such as the default of a borrower) or to assist with obtaining financing. Examples pertinent to this crisis included: the adjustable-rate mortgage; the bundling of subprime mortgages into mortgage-backed securities (MBS) or collateralized debt obligations (CDO) for sale to investors, a type of securitization; and a form of credit insurance called credit default swaps (CDS). The usage of these products expanded dramatically in the years leading up to the crisis. These products vary in complexity and the ease with which they can be valued on the books of financial institutions.

Question: What term refers to the ongoing development of financial products?
Answer: financial innovation

Question: What is an example of financial innovation pertinent to the financial crisis?
Answer: adjustable-rate mortgage

Question: What is the abbreviation for a form of credit insurance called credit default swaps?
Answer: CDS

Question: What is the financial innovation that bundles subprime mortgages?
Answer: mortgage-backed securities (MBS)

Question: What happened to the usage of financial innovation products in the years leading up the financial crisis?
Answer: expanded dramatically
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CDO issuance grew from an estimated $20 billion in Q1 2004 to its peak of over $180 billion by Q1 2007, then declined back under $20 billion by Q1 2008. Further, the credit quality of CDO's declined from 2000 to 2007, as the level of subprime and other non-prime mortgage debt increased from 5% to 36% of CDO assets. As described in the section on subprime lending, the CDS and portfolio of CDS called synthetic CDO enabled a theoretically infinite amount to be wagered on the finite value of housing loans outstanding, provided that buyers and sellers of the derivatives could be found. For example, buying a CDS to insure a CDO ended up giving the seller the same risk as if they owned the CDO, when those CDO's became worthless.

Question: When did the issuance of CDO peak?
Answer: Q1 2007

Question: What was the estimated value of CDO issuance in Q1 2004?
Answer: $20 billion

Question: What was the estimated value of CDO issuance at it's peak in Q1 2007?
Answer: over $180 billion

Question: What percent of CDO assets were subprime and other non-prime mortgage debt in 2007?
Answer: 36%

Question: What was the estimated value of CDO issuance in Q1 2008?
Answer: under $20 billion
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This boom in innovative financial products went hand in hand with more complexity. It multiplied the number of actors connected to a single mortgage (including mortgage brokers, specialized originators, the securitizers and their due diligence firms, managing agents and trading desks, and finally investors, insurances and providers of repo funding). With increasing distance from the underlying asset these actors relied more and more on indirect information (including FICO scores on creditworthiness, appraisals and due diligence checks by third party organizations, and most importantly the computer models of rating agencies and risk management desks). Instead of spreading risk this provided the ground for fraudulent acts, misjudgments and finally market collapse. In 2005 a group of computer scientists built a computational model for the mechanism of biased ratings produced by rating agencies, which turned out to be adequate to what actually happened in 2006–2008.[citation needed]

Question: Which products created more complexity in the financial markets?
Answer: innovative financial products

Question: What effect did the introduction of innovative financial products have on a single mortgage?
Answer: multiplied the number of actors connected

Question: What did institutions rely more on as increasing distance from underlying assets occurred?
Answer: indirect information

Question: What is a type of indirect information that financial institutions and investors used to judge the risk?
Answer: computer models of rating agencies

Question: In what year did a group of computer scientists build a model for ratings produced by rating agencies that turned out to be accurate for what happened in 2006-2008?
Answer: 2005
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The pricing of risk refers to the incremental compensation required by investors for taking on additional risk, which may be measured by interest rates or fees. Several scholars have argued that a lack of transparency about banks' risk exposures prevented markets from correctly pricing risk before the crisis, enabled the mortgage market to grow larger than it otherwise would have, and made the financial crisis far more disruptive than it would have been if risk levels had been disclosed in a straightforward, readily understandable format.

Question: What is a measurement of pricing of risk?
Answer: interest rates or fees

Question: What is the incremental compensation required by investors for taking on addition risk called?
Answer: pricing of risk

Question: According to several scholars, what prevented markets from correctly pricing risk before the crisis?
Answer: lack of transparency about banks' risk exposures

Question: How should risk levels have been disclosed according to several scholars?
Answer: straightforward, readily understandable format

Question: What was the outcome of the financial crisis since risk levels were not adequately disclosed?
Answer: far more disruptive
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For a variety of reasons, market participants did not accurately measure the risk inherent with financial innovation such as MBS and CDOs or understand its impact on the overall stability of the financial system. For example, the pricing model for CDOs clearly did not reflect the level of risk they introduced into the system. Banks estimated that $450bn of CDO were sold between "late 2005 to the middle of 2007"; among the $102bn of those that had been liquidated, JPMorgan estimated that the average recovery rate for "high quality" CDOs was approximately 32 cents on the dollar, while the recovery rate for mezzanine CDO was approximately five cents for every dollar.

Question: What did market participants fail to measure accurately?
Answer: risk inherent with financial innovation

Question: What are the reasons market participants did not understand the impact financial innovation products would have?
Answer: a variety of reasons

Question: How much did JPMorgan estimate was the average recovery rate for high quality CDOs that had been liquidated?
Answer: approximately 32 cents on the dollar

Question: How much did JPMorgan estimate was the average recovery rate for mezzanine CDOs that had been liquidated?
Answer: approximately five cents for every dollar

Question: How much did banks estimate was the value of CDOs sold between late 2005 to the middle of 2007?
Answer: $450bn
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Another example relates to AIG, which insured obligations of various financial institutions through the usage of credit default swaps. The basic CDS transaction involved AIG receiving a premium in exchange for a promise to pay money to party A in the event party B defaulted. However, AIG did not have the financial strength to support its many CDS commitments as the crisis progressed and was taken over by the government in September 2008. U.S. taxpayers provided over $180 billion in government support to AIG during 2008 and early 2009, through which the money flowed to various counterparties to CDS transactions, including many large global financial institutions.

Question: What firm insured obligations of various financial institutions using credit default swaps?
Answer: AIG

Question: What does the abbreviation CDS stand for?
Answer: credit default swaps

Question: When did the government take over AIG?
Answer: September 2008

Question: How much money did taxpayers provide in government support to AIG during 2008 and early 2009?
Answer: over $180 billion

Question: What did AIG receive for promising to pay Party A in the event that Party B defaulted?
Answer: a premium