How did the credit crunch happen?

esbo

And why

fatpig_2

posh spice hammered all her credit cards in rodeo drive I think

pumpndump

We will have to wait for the next book by David Icke before we will ever know the truth.

jon3001

Was it sustainable to lend a 5-times fake-income, 125% mortgage to someone with no assets who wanted to buy a 25% share in a luxury 1-bedroom apartment with 3 strangers on the Internet so that they could then release the 'equity' to pump into buy-to-let, 4x4s and plasma TVs?

The resulting mortgage was then packaged along with others and sold as a sound investment to raise even more money for more of the same.

McSaver

When everyone decided to withdraw their cash from northern rock frightened that they would lose their deposit.

Money_Watch

This might help to explain it: http://money-watch.co.uk/3868/the-credit-crunch-explained

tomstickland

It was caused by a post on the MSE house buying forum.

icefall

old threads here you may find interesting

http://forums.moneysavingexpert.com/showthread.html?t=832603

http://forums.moneysavingexpert.com/showthread.html?t=807411


http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/02/fsa_and_bankers_bonuses.html

http://news.bbc.co.uk/1/hi/business/7265828.stm

(btw you may be able to see where I am going with this - maybe...! )

Ximian

Quick and dirty summary:

Greed and the Sub prime mortgage bandwagon. Banks were getting bonuses for selling sub prime mortgages and it was a quick and easy way to make money. UK banks also jumped on the bandwagon and have lost billions/millions. CEO's of the banks that have lost millions continue to get 7 figure bonuses, kinda strange when you consider a bonus should be paid for performing well (if you can also AFFORD it) not the other way round. The economy slows down, people buy less, companies sell less, companies under perform and run at a loss and file for bankrupcy, inflation rises, jobs are lost, unemployment rises, people can no longer afford to pay the mortgage. Banks charge more to mortgage lenders and the mortgage lenders increase their rates, first time buyers find it hard to buy an affordable mortgage.

Sad thing is that the people that allowed this all to happen are unaffected and it's the average tax payer that suffers.

echelon101

It was caused by banks giving money to ninjas in the US.

purch

How did the credit crunch happen?

The Housing Market Bubble, Sub Prime Mortgages, CDO's etc etc were just the trigger, not the root cause.

The changes in the rules relating to Investment Houses and Banks, and the removal of the 'Paper Walls' between the two was the initial spark that set in motion the huge expansion of the Derivatives markets, which has resulted in the huge expansion of 'Off Balance Sheet' exposures (most of the risks of which are poorly understood, or not understood by even those doing the trading)

The is far more risk still to the world Financial and Credit markets from these instruments....the problems are not solely due to the Housing markets.

Like the Emperors New Clothes...it took something (the Housing Bubble Bursting) to expose the problems....now everyone can see what shaky foundations many of the Worlds largest Banks and Financial Institutions are built upon.