0. Introduction
The paper will discuss how the sub-prime crisis in the US came up and what were the effects for the Citigroup. It will also give an overview of what might happen in the financial sector looking at the biggest bank in the world.
I came up with this topic because I also invest money on the stock market. It is really important to understand the market and to analyze where it might be going. The crisis has already affected it and it will go on. Also since summer 2007 when the crisis started the media has been discussing it all the time.
First I want to explain why the sub-prime crisis happened by looking at the American housing bubble. Then I will compare the Citigroup before and after (still on-going crisis). I will also give an estimated view of where this crisis will lead and what ef-fects it will have for the bank. In the conclusion I am going to summarize the main parts and will express my own opinion where this might lead.
1. Sub-prime crisis
1.1 What is a sub-prime?
Sub-prime means persons who are debtors who do not have a lot of money. They obtained loans but were not really certified to receive one. This sector of the credit market started in June 2003 when former US Federal Reserve chairman Alan Green-span lowered the key interest rate to 1%. A lot of people took loans for mortgages without thinking about being able to pay back their mortgages at a much higher in-terest rate. The market was booming and since then mortgages have been given to customers worth $ 3200bn. About 20% of them were clients with little money or no proof of income. At this time nobody was really thinking where all that would lead to.
1.2 Short overview over the cr ...