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CHAPTER SEVEN | TWIN STORMS
The housing bubble in a nutshell: With the United States still recovering from the dot-com bubble and 9/11, the Federal Reserve slashed interest rates, eventually down to 1.13 percent in June 2003. Home prices soon shot up as new home buyer demand exceeded existing housing supply. Coupled with the federal government’s pressure that the “American Dream” of home ownership be made available to everyone, ever riskier mortgages were approved for borrowers who had little chance of paying them back. Eventually, the Federal Reserve started raising interest rates, which adversely affected the adjustable rate mortgages
popular with subprime borrowers. The higher
Donahue said. “All of those people were new, and none of them had actually gone through a real live liquidation of a member firm.” In response, Donahue instituted tabletop exercises to simulate failures. He insisted on using real firms and real data. It was clear that the economy was on shaky ground, so the firm upped the simulations to every six months. “The lights were flashing red,” Donahue said. “The Fed and the ECB were pumping in massive amounts of intra-day liquidity to help people bridge funding problems they had, triggered by their portfolios of CDOs throughout late summer/fall of 2007, and we had the forced takeover of Bear Stearns in March 2008.”
interest rates made paying back the mortgage much more expensive than when the mortgage was originally taken out—for millions of borrowers. As a result, the US economy collapsed in 2008 under the pressure of falling home prices and record mortgage defaults, bringing the global economy down as well. (Photo courtesy of Max Pixel.)
2010 DTCC launches DTCC 3.0, which would work to lower DTCC’s risk profile. DTCC’s Systemic Risk Office identifies processes and events that are risks for DTCC and the financial markets more broadly and begins implementing ways to mitigate them.
2011 Robert Druskin is named DTCC’s executive chairman of the board.
2012 AUGUST
2012 OCTOBER 29
Knight Capital has a technology glitch that
Superstorm Sandy comes ashore and water begins to flood the DTCC vaults. DTCC undertakes a yearlong process to save the certificates in its vault, recovering 99.5 percent of them.
threatens its viability. DTCC works with the organization to provide a wind down and help keep Wall Street solvent.
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