How did the credit crunch start? and will it ever end?

Question

How did the credit crunch start? and will it ever end?

Answer 1

The oh-so liberal US banks/lenders just went nuts and lent extreme amounts of money to people without jobs, nearly jobless, students and bankruptcies. They just waved a flag that said 'step right up and get your cash'. As soon as the defaults became overwhelming (which happens with unemployed persons) the mortgage backed securities couldn't cough up investor portions and the holdings took a massive dive. So why lenders gave $400,000 mortgages to Pookie Jones who has a FIC of 388...who knows?

Or to John-Boy Riley who has never held a job....ever but he'd "reckon he'd sure 'nuff git one'. (slappin forehead).

So the US is now sheepishly trying to do now, what Canada has always done....QUALIFY THEIR APPLICANTS!

1. Job ......check

2. FICO 680+......check

3. Non-bankrupt.....checkity check check.

Answer 2

It started in the US in early 2007, from the sub  prime mortgage crisis. In the UK a few months after that. In the Uk it actually started after the run of Northern Rock and the UK government nationalised it and appointed its proxies to manage it. To cut a long story short, I think it should not have done that. In fact after the run, the Bank of England should exercise its regulatory role to supervise it so that its management can put the Bank back on its own feet and function properly and profitably again. The credit crunch in the UK will end when the Banks there complete their write downs. Increase their capital/debt ratios and introduce good lending guidelines and prudent banking pratices with they had been renowned before. When all banks functions as an efficient financial service industry.

Answer 3

It started with banks and morgage companies lending money to people who cannot afford the repayments.

Credit was too freely  and easily available and people spent more money than they could afford.

World prices for food and oil have risen sharpley and everyday expenses have risen. Money is made more scarce.

China & India are more prosperous and have  taken more of the worlds resourses.

It is a case of supply and demand.

More demand and the price goes up.

Scares about bank liquidity (money available on demand for depositors) have caused a run on some banks. This means they have less money to lend. Added together with falling  valuations on property means the banks lending is less secure.

They do not want to lend money so easily.

This is the credit crunch.

It will end, it is impossible to say when.

Answer 4

The banks were negligent and lent a lot of money to people who couldn't pay it back. Then they realised they'd ****ed up and got scared of lending money to each other because they didn't know if the other banks were solvent enough to pay that money back.

Yes it will end because the banks have now realised they've been stupid and messed the world's economy up and are being more responsible. We've just got to endure the fallout and consequences of their previous irresponsible lending before things get back on track.

The other sting is the banks now want central banks/governments to bail them out for their stupidity. What other business can you run so catastrophically badly and then have tax payers prop you up for it?

Answer 5

This will prob turn into an essay im a undergraduate economist so this has been a bit part of my first year at uni.

Basically in the US risky people were sold mortgages so that the sellers would earn comission and they didn't care about these people afterwards.

Most people defaulted on their payments due to unemployment/age/death etc.

Banks then combined these bad debts and good debts and sold them to UK banks but they didn't know about the bad ones as it was sold as a whole package.

When the banks realised these were bad loans that they had bought all banks in the UK ceased lending money to each other (which is how banks generally work)

Northern Rock was hit the hardest as 70% of the money they lend is from other banks. This got into the media and thats when NR customers panicked and we all know what happened there.

As to whether it will end I have no idea.