[MUSIC] Welcome to Module 7, our second part of the study of Anxiety. The period before the Lehman Brothers bankruptcy in 2008. We talk in this module about a few case studies and these case studies help us to see. Help us to trace through how a problem in the subprime sector of the financial markets can actually affect parts of the markets that would seem to have no exposure to subprime. This is kind of the key question, the key point about the global financial crisis. Which is, how does it spread? How does it go and become an epidemic? How to we get financial word of contagion? We begin with a discussion of Northern Rock. Which is a British lender based in the North East of England that ended up requiring assistance and suffering a run on the bank in September of 2007. What's interesting about Northern Rock is they had very, very little exposure to subprime. In fact, the main problem they had was the exposure they had to the overall wholesale funding markets, the markets that suffered a lot of anxiety beginning in the summer of 2007. We'll talk about Northern Rock in the first two lessons. We move then from Northern Rock into two lessons about relatively obscure parts of financial markets. But obscure parts that turn out to be quite large and quite important. First, in lesson three, we'll talk about the Monolines, which are insurance companies that until the global savings glut period, were a very sleepy part of the market that specialized in insuring municipal debt, but that moved into insuring subprime securitizations during the GSG. The Monolines played a very important role in the municipal debt markets. And much municipal debt was sold in the form of something called auction rate securities, which we will describe in lesson four. Now, when the monolines ran into trouble, as they did because of their exposure to subprime, the auction rates securities markets that the monolines supported ran into trouble as well. And what ended up happening was municipalities that were nowhere near subprime in any way, suddenly found much higher borrowing costs. Then, in lessons five through seven, we will talk about the first major institution to be a casualty of the financial crisis in the United States and that was Bear Stearns, a large investment bank which first had trouble in the summer of 2007. But then saw $20 billion of liquidity drained from it in the second week of March, 2008. And then in lesson eight, we'll summarize with what we learned in this module. [MUSIC]
