The Subprime Crisis - Essay Example

The Subprime Crisis Introduction: The ripple of the subprime market crisis in the United s of America with concerns of recession setting in hasspread all around the world and was reflected in the in the tumbling of share prices worldwide (Chung & Orr, 2008). Given the significance of the growth and stability of the American economy in the economy of other nations, the turbulence in the American economy is likely to have an impact on the economic growth of other nations. Impact of the Subprime Market Crisis on Banks: The year of 2007 will be remembered mostly for the battering that banks took due to the subprime market crisis.

Starting in February with the biggest bank in Europe HSBC reporting a loss of $880 million through its US subprime unit Decision One Mortgage, the list extends to US subprime lender New Century Financial Corp, Citigroup, Wachovia Corp, Merrill Lynch, and Countrywide in the U.S., the German Banks IKB and the state bank Sachsen L B, the French bank BNP Paribas, the Dutch Bank NIBC, the British mortgage lender Northern Rock, and the largest Japanese bank Mitsubishi UFH Financial Group, INC. The strong Swiss Banking sector was also hit through Credit Suisse and UBS (FACT BOX: Subprime crisis affects banks worldwide).

Possible Impact of the Subprime Market Crisis on Switzerland in 2008: The breaching of the dependable string defenses of the Swiss Financial sector, by the subprime market crisis, causing a downswing in 2007 in the fortunes of what could otherwise be considered as a successful year for the Swiss economy, is an indicator that the Swiss economy will not be spared from the worldwide impact of the subprime market crisis in 2008. However, the Swiss economy can be expected to weather the storm of the subprime market crisis and restrict the consequences.

(Allen, 2008). The reasons for this optimism stems from the strengthening of the Swiss franc in the third quarter of 2007, against the U.S. dollar by as much as 6.7 percent. In addition the forecast for the GDP growth of 2.5 percent for 2007 is suggestive that the Swiss economy continues to remain robust. This was the result of the reaction of the Swiss National Bank to immediately inject liquidity, when a liquidity pinch was felt in August 2007 as a result of the subprime market crisis (Swiss Franc Outlook: Will Weakness Continue).

These moves of the Swiss National Bank saw the watch making and luxury goods manufacturing sectors performing well supported by the pharmaceutical and food product. Another factor weighing in is the domestic consumer strength of Switzerland. The Swiss economy can be expected to grow in 2008, but at slower rate due to the impact of the subprime market crisis. One of the areas that are likely to feel the impact of the slower growth rate of the Swiss economy in 2008 is the employment scenario, where some jobs are likely to be lost in the pharmaceutical and food products sectors (Allen, 2008).

Conclusion: The current financial crisis that has resulted from the US led subprime market crisis will affect Switzerland, but the Swiss economy can be expected to withstand the impact and restrict the consequences. Literary ReferencesAllen, M. 2007. ‘Dark clouds overshadow business gains’, swissinfo.ch, [Online] Available at: http://www.swissinfo.org/eng/front/Dark_clouds_overshadow_business_gains.html?siteSect=104&sid=8560043&cKey=1198748750000&ty=st(Accessed January 25, 2008).Chung, J & Orr, R. 2008. ‘Panic sparks plunge in global markets’, Financial Times, [Online] Available at: http://www.ft.com/cms/s/0/604d71dc-c853-11dc-94a6-0000779fd2ac.

html (Accessed January 25, 2008). ‘FACT BOX: Subprime crisis affects banks worldwide’, 2007, Daily Times, [Online] Available at: http://www.dailytimes.com.pk/default.asp?page=2007%5C11%5C04%5Cstory_4-11-2007_pg5_15 (Accessed January 25, 2008).‘Swiss Franc Outlook: Will Weakness Continue’, 2007, Daily FX, [Online] Available at: http://www.dailyfx.com/story/currency/chf_fundamentals/Swiss_Franc_Outlook__Will_Weakness_1192132494178.html (Accessed January 25, 2008).