1. Good Day! CA Content Standard: DRAW A LINE SEPARATING TODAY & YESTERDAY 1) Write: Date: 02/25/10 , Topic: Housing Bubble 2) On the next line, write “ Opener #22 ” and then: 1) Plot your mood, reflect in 1 sent . 2) Respond to the opener by writing at least 2 sentences about : Your opinions/thoughts OR/AND Questions sparked by the clip OR/AND Summary of the clip OR/AND Other things going on in the news. Announcements: None Intro Music: Untitled

3. Agenda 1) Book Checkout (10 points) 2) Test 2 Study Guide 3) Housing Bubble End Goal, you will be able to… 1) How are the Fed and housing connected? Reminder 1) Study for Test that’s on Friday 3/5

4. Team Quiz (10 Points) Discuss the following questions with your group. Make sure everyone understands how to answer it. Once the quiz paper is passed out, everyone individually writes their own responses. No talking once we start writing. 1 paper will be graded from each group ( 10 points ). Prepare now. Ask Mr. Chiang only if no one in your team knows. 1) How are jobs, shopping, prices, inflation, interest rates all connected? 2) How and why does the Fed have indep.? 3) Why does the Fed not just print money? 4) Tools the Fed uses to persuade banks to reach Funds Rate Target AND which is used most? 5) What is fractional banking (how does the bank reserve make money multiply each time money is deposited)? 5 Reading/Film Qs Come From These Work Sections

5. Review 1) 3 Tools of the Federal Reserve : i) Change banks Reserve Requirements : % of money banks must hold on to, can’t loan out ($ it keeps at the Fed). ii) Change the Discount Rate : Interest rate Fed charges banks for short term loans. 0.50% (disc rate always higher than Fed Fund Rate) iii) Sell US Bonds (bonds previously bought) OR buy US Bonds (with “new” money).

6. Federal Reserve Tools 2) Federal Reserve uses 3 tools to increase money supply Banks less needy for money, lower savings rates Banks lower loan rates, since saving rates are lower People buy more since loans are more cheaper Fighting recession

7. Federal Reserve Tools 3) Federal Reserve uses 3 tools to reduce money supply Banks more desperate for money, raise savings rates Banks increase loan rates to cover higher saving rates People buy less since loans are more expensive Fighting inflation

8. 4) Federal Funds Rate Target : Funds rate is the interest rate banks loan to each other. All other interest rates follow this. Fed can’t force private interest rates, but they use the 3 tools to try to pressure banks to hit target. Currently: 0.25% UK ver: London Interbank Offered Rate LIBOR

10. If the USA just printed money to speed things up, inflation could get out of control.

14. Review 1) Appreciating : Gain value over time: education, real estate, businesses 2) Depreciating : Lose value over time: clothes, cars 3) Loans and the American Dream : Loans allow anyone who will work hard to get a chance. Without loans, the economy would grow slower since you’d have to raise $. Poor students can get an education, small businesses can expand into a new area.

15. Review 4) Home Loans : a) 80/20 Loan: Pay 20% down, cheapest APR, right now about 5% APR. b) O down Loan: Pay for default insurance c) Fixed Loan: Fixed APR (15yr or 30yr) d) ARM Loan: Adjust to inflation, good current int is high, (sometimes a mix: 5/1) . e) Interest Loan: Pay interest first, then principal, cheaper bills earlier, more exp later (used if you plan to sell right away) f) Home Equity Loan: Use house equity (% of value you own) as down for new loan.

16. Notes #22a , Title: “ Housing Bubble ” 1) Subprime : High risk borrower 2) Clinton : Wanted to make home loans easier so more can have Am. Dream 3) 9/11 : Fearing econ crisis, reduces fund rate target. 4) Liquidity : Can you use your money? When money is tied in loans, can’t lend out more.

17. 5) Derivatives : Investments that earn money off other investments. 6) Federal National Mortgage Association ( Fannie Mae ) and Federal Home Loan Mortgage Corporation ( Freddie Mac ) : Launched by gov (meant to be private once launched) to buy loans (keep %) and then to sell as bonds (pay % to investor) so banks can lend more (poorer ppl get loans) 7) Mortgage Backed Securities (MBS) : a kind of derivative, inst. like FM bundle up loans to sell as bonds. MBS spread risk, bank now safer, but economy exposed to wide/small risk 1000 1000 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 2000 bank liquid

18. Work #19b , Title “ Should You Buy ” Here’s the scenario, you make: $70k, after tax monthly: $4000 (48k). 1) List your monthly cost, ranges: a) Food (out+cook): $150-X b) Cable+Internet: $30-200 c) Cell: $10-80 d) Electricity: $20-80 e) Gas + Insurance (liability or full): $80-200 f) Shopping: $50-X g) Car Payments (10k-40k): $150-600 h) College Loans (15k-150k): $100-1000 i) Savings: $4000 - (A thru H) DOUBLE CHECK

19. 2010 To adjust for inflation/ COLA (cost of living) Estimate an additional $10k Though finding jobs tough for grads in 2010

20. Work #22a , Title “ Should You Buy ” Here’s the scenario, you make: $50k, after tax monthly: $2800 (34k). 1) List your monthly cost, ranges: a) Food (out+cook): $150-X b) Cable+Internet: $30-200 c) Cell: $10-80 d) Electricity: $20-80 e) Gas + Insurance (liability or full): $80-200 f) Shopping: $50-X g) Car Payments (10k-40k): $150-600 h) College Loans (15k-150k): $100-1000 i) Savings: $4000 - (A thru H) DOUBLE CHECK

21. Work #22a , Title “ Should You Buy ” Here’s the scenario, you make: $70k, after tax monthly: $4000 (48k). You live in San Jose: Buy: $ mo Rent: $ mo 2) Explain if you should buy or rent. Add rent or mortgage to your list. Monthly Mortgage: $ OR Just Tax (1% of price): $ Rent: $

22. Work #22a , Title “ Should You Buy ” Here’s the scenario, you make: $50k, after tax monthly: $2800 (34k). You live in San Jose: Buy: $ mo Rent: $ mo 3) Explain if you should buy or rent. Add rent or mortgage to your list. Monthly Mortgage: $ OR Just Tax (1% of price): $ Rent: $

23. Work #22b , Title “ Video: Housing Bubble ” 1) Copy Source Title: Property Ladder + Misc 3…) Discuss questions on the board with a partner. Summarize your discussion ( include their name at the end ). Remember participation points are deducted if off task. 5 Reading/Film Qs Come From These Work Sections Time Bookmark: 00:00

24. Notes # , Title: “ Housing Notes ” Housing Bubble Pops (tomorrow): Clinton wants more Am. to reach Am. Dream of home ownership, pressures Fannie Mae+Freddie Mac Federal National Mortgage Assoc + Federal Home Loan Mortgage Corp 9/11, Fed Reserve lower interest rates to prevent econ panic Both mean more money avail to loan, fueling hot housing market Invest. banks develop ways to expand money even more, more riskier loans …POP!

25. Homework: 1) Study for Test 2 that’s on Fri, 3/5 Workbook Check: If your name is called, drop off your workbook with Mr. Chiang ( if requested, points lost if your workbook is not turned in )