Credit Crunch – Ignoring the Signs
Inappropriate lending and greed appear to be two causes of the credit crunch we face right now. Loans were granted to borrowers who should never have been allowed to add to their existing debt load. As these ‘bad loans’ began to turn sour, the banks and other lenders had a smaller supply of money to lend.
Suddenly borrowing became more difficult and expensive for everyone. Usually difficulty in borrowing would be due to a lack of confidence in a borrower’s collateral. With Lenders anticipating a decline in the value of the collateral provided by the borrower to secure the loan, guidelines for qualifying have become more stringent. Sometimes the issue may simply be a perception of risk regarding the solvency of other banks within the lending system.
With the law of supply and demand kicking in, as the supply or availability of money shrunk, the cost of borrowing rose. Most recently, some lenders stopped lending completely while others collapsed under the weight of the bad loans they had accumulated.
A Credit Crunch Gains Momentum Read more
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