1. DRAW A LINE SEPARATING TODAY & YESTERDAY 1) Write: Date:
02/24/10 , Topic: Housing 2) On the next line, write Opener #21 and
then: 1) Plot your mood, reflect in 1 sent . 2) Write down: Dow %
Change , NASDAQ % Change , and your current stock % 3) Respond to
the opener by writing at least 2 sentences Notebooks not yet graded
, please pick up, drop off again at on Thursday. One last
time.
2.
3. Agenda 1) Book Checkout (10 points) 2) Federal Reserve 3)
Housing End Goal, you will be able to 1) How are the Fed and
housing connected? Reminder 1) Study notebook for definite
quiz
4.
5. Review : 1) Americans buy things not on how much money they
have, but how much they can borrow cheaply. 2) If there is more
money out there then interest rates drop (cheap loans) 3) If there
is less money out there then interest rates increase (pricier
loans)
6. Review: How Bank Makes Profits 1) Loan Interest Rate: 6%
Bank: Profit Margin Saving Interest Rate: 0.2%
7. Notes #20a , Title: Federal Reserve 1) Federal Reserve : Gov
regulatory agency that controls US money supply ( monetary policy
). Fed Board serve 14 yrs to protect from politics. Led by Chairman
Ben Bernanke . Federal Reserve called the Fed or the bankers
bank.
8. Federal Reserve System 1) US Gov Needs Money, Issues US
Bonds (iou) Investors buy bonds Federal Reserve can BUY bonds from
investors (open market) Investors get new money from Federal
Reserve for the investors' bonds More money in the economy
9. Federal Reserve System 1) US Gov Needs Money, Issues US
Bonds (iou) Investors buy bonds Federal Reserve can SELL bonds from
investors (open market) Investors buys more bonds, gives money over
to Federal Reserve Less money in the economy
10.
11. US Bureau of Engraving and Printing prints money for the
Federal Reserve.
12. Federal Reserve Bank Letter/Number Boston A New York B 2
Philadelphia C 3 Cleveland D 4 Richmond E 5 Atlanta F 6 Chicago G 7
St Louis H 8 Minneapolis I 9 Kansas City J 10 Dallas K 11 San
Francisco L 12
13. Most of the Feds money these days is just electronically
created.
14. Fed is indep. specifically so it wont just print money, it
uses more delicate tools
15.
16.
17. Fed Independence : a) 7 openings, 14 year terms , picked by
the President, confirmed by the Senate b) 1 of the 7 picked to be
Chairman for 4 years by the Pres, confirmed by Senate: Chairman Ben
Bernanke c) Politicians have pressure to create short term boost in
election years, Fed fights for stable growth
18. Alan Greenspan : Appointed 1987 Former Chairman
19. Ben Bernanke : Appointed 2006 Current Chairman
20. Notes #20a , Title: Federal Reserve 2) Economy Growing Too
Fast (inflation): Too many ppl want to buy things, prices go up (
inflation ). High prices get biz too excited, and too much is
produced. Biz then face losses, leading to recession.
21. Notes #20a , Title: Federal Reserve 3) Slowing Economy
(recession): People have less money OR fear bad times ahead, no one
wants to buy things, prices go down. Jobs lost as less is produced
( unemployment ).
22. Notes #20a , Title: Federal Reserve 4) Economy Growing Too
Fast (inflation): Reduce money, make it more expensive to borrow.
Less money supply increases price of borrowing/higher interest
rates (banks increase interest rates to attract more money to lend
out) 5) Slowing Economy (recession): Increase money, make it easier
to borrow. More money available (banks can give lower interest
rates, since extra money)
23. Work #20a , Federal Reserve Debate 1) Read the 2 sides,
choose 1 side, and write which you choose and explain why . 2) Then
write down what your partner thinks ( include their name at the end
). 1 2 3 4 5 CON: Fed should help the economy during a recession
(jobs) 1) Whats the point of stable money value, if no one has a
job? 2) The Fed can act more quickly and powerfully than Congress.
PRO: Fed should just focus on stable money (prevent inflation) 1)
Stable money is the backbone to any economy, the Fed should focus
on this alone. 2)Too attractive for gov to have Fed just print
money
24. Notes #20b , Title: Federal Reserve 6) 3 Tools of the
Federal Reserve : i) Change banks Reserve Requirements : % of money
banks must hold on to, cant 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).
25. Federal Reserve Tools 6) 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
26. Federal Reserve Tools 6) 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
27. Notes #21a , Title: Federal Reserve 1) Federal Funds Rate
Target : Funds rate is the interest rate banks loan to each other.
All other interest rates follow this. Fed cant 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
28. Notes #21a , Title: Federal Reserve 2) Federal Open Market
Committee (FOMC) : Federal Reserve Committee of 12 : 7 Fed Board
members and 5 of the 12 district bank presidents work with Bernanke
to make monetary decisions.
29.
30. If the USA just printed money to speed things up, inflation
could get out of control.
31.
32.
33.
34. Work #21a , Title Partner Questions Read and then respond
to these questions with a partner ( include their name at the end )
: Changing the Daily Reserve Requirement Federal reserve sets daily
percentage of money must be kept at the Fed , and rest can be lent
out as loans . Banks will keep only what the Fed reserve says it
has to (NO profits on reserve money, res req approx: 15%). 1)
Lowering to 10% will fight inflation or unemployment?
35. Notes #21a , Title: Federal Reserve Notes Fractional
Banking: You put money in bank, bank hold Reserve, lend rest.
Borrower 1 puts money in his/her bank, bank hold Resv, lend rest
Borrower 2puts money in his/her bank, bank hold Resv, lend rest
Borrower 3 puts money in his/her bank, bank hold Resv, lend
rest
36. M1 - Physical US dollars M2 - Physical US dollars + Dollar
amount held in average savings accounts M3 - Physical US dollar +
Dolar amount held in large saving accounts + Dollars held
overseas
37. Work #21a , Title Partner Questions Read and then respond
to these questions with a partner ( include their name at the end )
: Changing the Discount Rate Federal reserve makes short term loans
to banks currently: 0.50%. These loans are to cover any shortages
in a banks reserve requirement with the Federal Reserve (Fed is
lender of last resort). 2) If the Fed increase the Discount Rate to
9.50%, reduce inflation or unemployment?
38. Notes #21a , Title: Federal Reserve Notes Discount Rate:
Fed can make short term loans (of new money) to banks, DISCOUNT
RATE 0.5% This impacts interest rates bank charge borrowers (cost
of biz) Borrows buy more or less based on interest rates.
39.
40.
41. Work #21a , Title Partner Questions Read and then respond
to these questions with a partner ( include their name at the end )
: Making Open Market Operations on Bonds When the US Gov needs to
borrow money, it issues US bonds, These bonds are sold to private
investors, the Fed can then buy US bonds from private investors.
The Fed does not buy directly from the US gov, b/c its goal is to
control money supply, not help the gov with its debt. 3) Fed buys
US bonds reduces inflation or unemployment?
42. Notes #21a , Title: Federal Reserve Notes Open Market: Fed
buys/sells US bonds from investors This expands money/freezes
money. Less money means banks pay more in savings interest rates %
Borrows buy more or less based on interest rates.
43. Review 1) Federal Funds Rate Target : Funds rate is the
interest rate banks loan to each other. All other interest rates
follow this. Fed cant force private interest rates, but they use
the 3 tools to try to pressure banks to hit target. Currently:
0.25%
44. Notes #21b , Title: Federal Reserve Notes 3) Federal Funds
Rate: Fed most often: 1: buy/sell bonds 2: change discount rate 3:
change bank reserve req These change how much money is out there,
so it changes what banks charge each other: FED. FUNDS RATE TARGET
This impacts interest rates bank charge borrowers (cost of biz)
Borrows buy more or less based on interest rates. Fund rate is a
goal/ bench mark (faster to measure than changes to consumer loan
rates)
45.
46.
47.
48.
49.
50. Work #21b , Title Fed Wrapup Answer with a partner (
include their name ). 1) Why was the Fed created to control the
money supply, rather than Cong/Pres, how if Fed protected? 2) Fed
can just print unlimited money why does it not just use this
enormous power? 3) Why doesnt the Fed just buy US Bonds (US debt)
straight from the gov, wouldnt that help the gov out (hint: is the
surpose of Fed buying bonds to help US debt or to control money
supply) 4) Why interest rates directly tie to ppl spending? 5) What
is one concept you are most confused of
51.
52. 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 youd have to raise $. Poor students can get
an education, small businesses can expand into a new area.
53. Notes #21b , Title: Housing Loans 1) 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.
54. Work #19b , Title Should You Buy Heres 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
55. 2010 To adjust for inflation/ COLA (cost of living)
Estimate an additional $10k Though finding jobs tough for grads in
2010
56. Work #21c , Title Should You Buy Heres 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
57. Work #21c , Title Should You Buy Heres 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: $
58. Work #21c , Title Should You Buy Heres 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: $
59. Notes # , Title: Housing Notes Housing Bubble (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 loansPOP!
60. Work #21d , Title Video: Preview Financial Crisis 1) Copy
Source Title: Property Ladder 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
61. Work #21e , Title Closer Shareout Pick the 1 most important
thing you learned today to share with your partner. 1) Write down a
brief summary of what your partner said ( include their name ). 2)
Rate 1-10 (1: confused, 10: too easy) how well you well you
mastered todays lesson. 3) Summarize Mr. Chiangs feedback.
62. Homework: 1) Study todays notes + work sections for a
definate workbook quiz on Fed (on todays notes only) 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 )