The Credit Crunch

The credit crisis started in the US, the analysis links the credit crises to the sub-prime mortgage business. This is a bank give high risk loan to people with poor credit histories. The Collateralised Debt obligations (CDOs) sold on to investors globally. This source of CDOs increases the liquidity in the market places. The CDOs are AAA rate assets, rates of return were huge. The bank were issuing long term mortgage against investing in assets.

The house prices falling but interest rate rising, this lead to people cannot pay their mortgages. Therefore investors suffer looses and they cannot reluctant to take more CDOs. The credit market is rumblings as bank are reluctant to lend each other.

The sub-prime mortgage crisis is quickly effect all over the world. The US federal bank and EU central bank tries to make money available for bank to borrow with lower interest rate. But the liquidity crisis not solve, bank remain trouble with lending each other. The cash become a rare; businesses were finding is difficult to fund. The lack of credit leads to job losses, bankruptcies and increase in living cost.  The public were severing problems with this crisis.  The Lehman Brothers was the first major bank to collapse in the credit crisis.

The solution was made by the US government agrees a $ 700bn bail – out that plan to borrow the money from world financial market and the UK government launches its own bail out. The banks have to confidence with the housing market. The most important banks have to planning the risk and spreading the risk in different portfolio. So how these bankers were did?

Therefore specific regulation would be most useful to the investment assets, which will help to avoid the problems again in the world. If the same mistake will be come in the future, that could be far more serious than before. Therefore bank have to strict control in credit system.