Explain the credit <span title="crunch?......................................?">crunch?.....................</span>

Question

will someone please explain the credit crunch to me...

like about lack of jobs and everything ,,,, its really confusing me lol :S

thanks x

Answer 1

As the sub prime mortgage bottomed out. The bank complete their write downs. The banks increased their liquidity ratio. The credit crunch begins. Now banks are more selective and careful in their landings. They need to change to a new lending systems and policies. One way is to give out more small loans to small and medium enterprises to help grow the economy and to create jobs. As opposed to giving huge loans to a few big companies where the risk are high

Answer 2

banks were in a hurry to make money on loans, so they qualified a lot of people that couldn&#039;t afford loans.  the banks aren&#039;t the only ones at fault.  a lot of people lied on their applications or speculated on their future earnings in order to buy these homes.  meanwhile they bought everything they needed with credit cards.  the credit crunch is an exercise in personal irresponsibility.  this is exactly what our society has become because everyone always expects the government to come in and save the day.  in the old days, when you overextended yourself, you got a 2nd or 3rd job, or you ended up homeless.  

there are very few places in the country that have a lack of jobs.  it&#039;s more about people not wanting to take the jobs that are available.

Answer 3

As ever, it&#039;s a multi-faceted thing.

Economies rely on debt; the whole fractional reserve system thrives on the creation of new money through debt.

Resultantly, banks issue loans for businesses, mortgages etc and it&#039;s their job to police lending to avoid providing cash to those who will be unlikely to pay it off (bad debt)

Unfortunately, sub-prime borrowers for mortgages were allowed to borrow fairly freely at high interest rates, though this didn&#039;t work out terribly well as it simply resulted in massive defaults... this then spiralled out of control as people with exposure to these sub-prime mortgages wanted to offload exposure but were unable to find any buyers for it - hence reducing liquidity for lending and so resulting in a widespread distaste for lending amongst banks due to this reduction in commercial liquidity.

This in turn hurts businesses as they become victims of banks who look to regain their liquidity and reduce their risk by calling in loans from their immediate borrowers... this then results in the business having less working capital and hence requires lay-offs to offset it.

Eventually the whole thing will reach an equilibrium and resume expansion... nobody can say when, but, as positions are unwound and things return to normality (namely buying and selling debt becomes easier for the commercial banks to do) things will resume and start over into another cycle.

Answer 4

Look, someone slams their knee into your nuts.

It&#039;s painful right?

So is the credit crunch.

Slightly different set of issues but essentially the same.

Answer 5

Basically Bush,Blair and Brown destroyed the worlds economy together and have ruined everyones finances, destroyed businesses, brought down banks and killed peoples businesses and It aint getting any better

Answer 6

Banks were lending too much money.

People were living on borrowed money.

Because people had all this borrowed money they were spending like there was no tomorrow.

Some people had borrowed so much money they couldn&#039;t pay it back.

Now banks want it back and have stopped lending so much.

People now panicking because they can&#039;t afford to pay it back.

People in debt have stopped spending. This means less demand for products and services so companies lay off their work force.

Answer 7

its a tasty new breakfast cereal