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This paper briefly analyses the major reasons for the credit crunch started in the last year.
The major reason for the current financial crisis is the unwise lending habits of the financial institutions like banks. “Banks found ways to increase the number of mortgage loans through strategies such as interest only mortgages, 100% mortgages and lending to people with poor credit histories” (Who is to Blame for Credit Crunch?). American public have the habit of spending all the money they earned without saving anything for the future. When they are need of money they approached the banks and the banks were ready to give them loans as much as they required, without assessing their financial capabilities. Banks never calculated that an economic crisis like the current one may happen in near future. The banks thought that the global economy is a renewable source. They consider it as an ocean of wealth which will never be exhausted. The allocation of resources in the case of a bank is mainly the loans of different forms to the customers. This allocation has not been done properly by the banks. They have allotted loans to all the people irrespective of the financial strengths of the customers. They have not conducted any reviews to assess the financial setups of the customer at present and also they failed to forecast the future.
On the other hand, the greedy customers accepted all the offers from the banks with both hands. They have approached the banks for everything and the banks were ready to fulfill their dreams. The banks were too focused on selling their goods or services rather than buying the goods or services. They thought the success of banking business rest on selling rather than purchasing. They never bothered too much about the returns against the services they provided. In their opinion, American economy was capable of facing any challenges or threats from the
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(“Credit Crunch Essay Example | Topics and Well Written Essays - 500 words - 5”, n.d.)
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(Credit Crunch Essay Example | Topics and Well Written Essays - 500 Words - 5)
“Credit Crunch Essay Example | Topics and Well Written Essays - 500 Words - 5”, n.d. https://studentshare.org/miscellaneous/1559728-credit-crunch.
This was because of the structural nature of the crisis which prompted responses from the countries in different manners since the economic structure of each country varies due to the way in which the economies are ordered (Vogt & Leuschel, 2011, 15). This paper considers the responses of two countries, Russia and India, which have markedly different economies, to the global financial crisis.
The major causes could be termed as excessive liquidity, excessive lending, excessive leverage and excessive risk taking by the banks and other financial institutions. The global credit crisis posed a greater threat to UK Economy. It is estimated that almost 20,000 people will be losing their jobs alone in London's Financial Service Industry.
The result is greater market fluctuation, which can lead to negative effects, such as more expensive mortgages, problems for pension savers, and even bankruptcy. Apart from that, credit crunches can occur even without an evident recession.
"Credit crunch" has been the most commonly used new term over the past few years.
Credit normally contracts during a recession, but an unusually large contraction could be seen as a credit crunch. In their analysis, Bernanke and Lown compare the contraction in credit during the most recent recession to those in the previous five recessions.
Treasury secretaries and finance ministers worked late into the night looking for a way to grease the wheels of commerce and get the credit flowing again. The greatest economic minds in the world were at a loss to explain the crisis
The author states that the current financial problems are caused mainly because of the improper lending habits of banks. Banks were ready to satisfy all the customers who approached them for loans without any investigation about their financial abilities. Interest rates were cut down and the repayment periods were increased by the banks.
There have been job cuts, firings and downsizing – all of which have hampered the basis of sanity within the world’s domains. It goes to show that credit crunch has played havoc with the world order and the people who have brought the globe
In such condition, the connection between the interests rates and the availability of credit has unconditionally changed in such a manner that either the loan is fundamentally less than any quoted formal rate of interest or there stops to be a precise
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