Can someone please explain to me what the "credit crunch" is in laymens terms?

Question

Can someone please explain to me what the "credit crunch" is in laymens terms?

Answer 1

Mortgages are failing, leaving banks holding billions in defaulted loans. They, in turn, have less to lend.

Answer 2

thats when you crunches with your credit cards. lol

Answer 3

It is a term used to describe a sudden reduction in the general availability of loans (or "credit"), or a sudden increase in the cost of obtaining loans from the banks.

Answer 4

Banks and other financial institutions (companies with money) were lending money to people by borrowing money from other companies.  All was well and good until the person who actually lent the money stopped getting paid back.  They in turn, stopped lending money to banks and financial institutions or at least they began to make it more difficult to borrow those funds.

In part some of the answers above are spot on - people borrowed money they could not repay because it was easy to get it and everyone wanted to give it to them.  Since many of these nice people either could not or did not repay the loan, people stopped wanting to lend money - aka "credit crunch".  

I guess this could be defined as a period in time where it is difficult to borrow (get credit) money.  In some ways crunch is a euphemism for other less understood or more derogatory terms (aka disaster).  Credit Crunch kind of is the layman's term :)

Hope that helps.

Joe...

Answer 5

too many people owe too much money.  

Answer 6

It's quite an involved series of events, but is basically the result of bad lending/ bad borrowing.

We have been living on credit for a long time and our economy has become overly dependent on credit. This all came to a head with the 'sub-prime mortgage problems' where people were sold mortgages when they would not be in a position to repay them. The lenders has assumed they would be able to repossess to get their money back but the drop in housing prices meant that they couldn't. This affected global banks badly as they had 'bought' these bad debts.

http://www.thecreditcruncher.com/2008/06...

The current crisis however has combined with static wages and rocketing prices to accelerate us into a recession which is just around the corner.

http://www.thecreditcruncher.com/2008/08...

Frankly we are paying for our over-use of credit, and not before time...

Answer 7

A few years ago banks lent out tons of money to just about anyone. Lots of these folks didn't pay it back and the banks lost tons of money. So to recover there losses it is now a lot harder to qualify for a loan.  And if you do its usually at a much higher intrest rate.  

Answer 8

Mortgages are failing and people are losing their homes because of it.  This is leaving the banks holding billions of dollars in defaulted loans making them more cautious in giving out loans with lower interest rates to new home owners or even business owners.  This affects people then since they are more hesitant on spending money other places.

Answer 9

fico score lending. Banks lent people money based on a stupid number instead of looking at their financial situation. They then defaulted on loans.  

Answer 10

It's a new breakfast cereal that is enjoyable to eat when you buy it but will be excruciatingly painful in less than 24 hours when you have to dump it.