[MUSIC] Welcome to Module 6, the first part of our discussion about anxiety. Specifically, the anxiety that took hold in markets beginning in the middle of 2007. In Lesson One, we'll talk about some notable events in 2007. Things that aren't as famous as the Lehman Brothers bankruptcy in 2008 but really were the very strong precursors to what eventually turned into the global financial crisis. In order to really understand these events, this is going to be a module where we give a lot of acronyms, a lot of new acronyms that are relatively obscure and not ones that you would typically pay attention to outside of a study of the global financial crisis. The first of these acronyms, which we will talk about in Lessons Two and Three, is the ABX, which in an index that tells us what's going on in subprime mortgage markets. So just how risky do people think subprime mortgage markets are? Once we have the introduction to the ABX, we can take a look at what happened in the summer of 2007, when anxiety first spread from what was going on in subprime housing markets into the financial system, with concern about the financial system. This is despite the fact that just two months earlier, Chairman Ben Bernanke gave a speech saying we understand that subprime is a problem but we don't think it's going to infect the broader financial system. To see how it did infect the broader financial system, in Lessons Five and Six, we introduce a few more acronyms. Importantly, the difference between the LIBOR, the London Interbank Offering Rate and the OIS, the Overnight Index Swap. That's a lot of words to explain a very simple concept, which is just how safe did the banking system appear to its counter parties? How expensive was it for banks to borrow on an unsecured basis versus an unsecured basis? A measure of fear in interbank markets. This fear in interbank markets, which first manifests itself in August of 2007, finds a particularly strong outcome in asset-backed commercial paper, or our last acronym of this module, ABCP. Asset-backed commercial paper is another form of manufacturing safe assets, similar to securitization. The markets in asset-back commercial paper grew tremendously during the global savings glut period and then collapsed in the second half of 2007. That collapse really was a drain on liquidity to the overall banking system, a very important precursor to the financial crisis that would become full blown in 2008. And then finally, in Lecture 11, we summarize what we've learned in this module. [MUSIC]
