FIRE Industry Analysis

The FIRE industry means Finance, Insurance and Real Estate, which are the blasting fuse of the financial crisis. In the past six years, from 2002 to 2008, the growth of economics lowers the investors' watchfulness and the pressure of performance forces them to pursue high-profit return by investing derivatives.

Unlimited expansion of leverage exchange eventually explored one day. In the Sep08, Lehman Brother knocked the funeral bell of Wall street and caused a series of bankruptcy. The financial crisis started from the sub-prime mortgage and ended in nationalization of banks. The default of US sub-prime mortgage is shown below:

With the decrease of economics, both of the value of pledge and income of debtor drop rapidly. Once they were laid-off and unable to pay the loan, the bank had to auction their house and bore the loss of inventory reduction. The vicious cycle will deeply hurt the development of economics. The government lowers the interest rate to alleviate the burden of debtors but damage another industry, insurance. Most of insurance companies accumulated capital in high interest rate when the market was in expansion. With the interest rate becomes lower, they have more pressure to pay the interest. The interest rate is shown below:

This financial crisis ended the US FIRE industry because
1. Finance: No investment bank in the Wall Street and hundreds of banks go bankruptcy.
2. Insurance: AIG owe US government more than $150B.
3. Real Estate: Tremendous house are in auction.

Conclusion:
No one knows how to do if the interest rate is down to zero!