Impact of credit crisis on international / global businesses - Essay Example

This kind of assets, loans or bonds are bundled together called Collateralised Debt Obligation and were sold on a global basis to the investors. It is because of the high interest rate and the falling prices of the houses which lead to non-payment of their mortgages by the investors. And due to huge losses suffered by them they hesitate to take more CDOs. This leads to the congealing of the banks hesitating to lend money to other banks. Later the effect of the subprime mortgage crisis is sought to have major implications beyond the US.

Investment banks faced huge amount of losses in Australia and firms cancelled the sale of their bonds citing at the market condition. Efforts are made by the US federal bank and the EU central bank to improve the money market, thus making the funds available for the banks to borrow. In spite of the assistance provided by the two banks, the problem of liquidity crisis could not be solved. Due to the lack of credit facilities to the various financial institutions, individuals and companies; threats of job loss, bankruptcy, recession, repossession and increase in the living cost arose.

The demand for the emergency loan in order to stay afloat was demanded by the UK Northern Rock bank as the worried investors withdrew £2bn. Moreover, financial sector’s confidence reduced with the collapse of the US Bear Stearns bank. The US government to facilitate some long term solution to the problem agreed $700bn bailouts to purchase the bad debts of the Wall Street in return of some stakes in the bank. It also decided to borrow the money from the global financial market with the hope to sell the anguished assets back after the stabilization of the housing market.

Even the UK government tries to launch its own bailouts of £400 bn by making extra capital available to the UKs largest banks in return for the preference shares with an expectation of the government to get stake in the bank. The