Credit Crisis - Basic concepts & global influence

could suffer worst recession since WWII

econemy relies on exports

no one to import pruducts

exporting less

single market recession

less money to buy products

high profit deal

widely used

low credit on loans

functionality

borrow money

buy product

sell pruduct w/ higher price

pay money + interest back

profit

trusting eachother AND passing risk along

Nothing would happen,
because it didnt happen before

exp: no vivid memories
(Kahneman)

--> exp: mortages = bombs
Passing "bombs" to the next
--> not caring about the consequences

Give loans without checking peoples financial situation

risky sub-prime mortgages are bought in high quantatiy by investment bankers

("high risk" and "low risk" mortgages are sold as one big mortgages)

the investment banker puts them in one box called CDO

Untertopic

CDO is sliced up in good, okay and risky mortages which are seperatly sold to investers, other bankers and "risky bankers"

Untertopic

top expert: Kahneman

nice overview

behavioral psychologist

Nobel prize in 2002

findings

people assess risk higher if

they have a vivid impressions of the risk

or have a personal link to the risk

or if there's a good background story to it

or if it evokes strong emotions

people assess risk lower if

it is (hghly) abstract

has no connection to them

people in general are risk-averse

avoid risks if possible

favor lower secure win over higher but less possible win

general: people react to incentives