Credit Crunch

Credit Crunch

The 2007 / 2007 Credit Crunch
The subprime mortgage crisis, which started in July 2007, developed into a Global financial crisis in 2008. The financial crisis was referred to as a "credit crunch" which was initially due to a loss of confidence by investors in the mortgage and loan markets in the United States. However due to the close interaction of banking institutions across the world the "credit crunch" resulted in a global liquidity crisis. The effects of the "credit crunch", when banking companies stopped lending to each other resulting in bankrupt or acquired banks, were so serious that the Bank of England, the European Central Bank and the United States Federal Reserve had to provide 'bail out' packages in order to make substantial injections of capital into financial markets.

Credit Crunch Definition
What exactly does the term 'Credit Crunch' mean? What is the Definition of the Credit Crunch? First of all instead of the term 'credit crunch' think instead of the terms like 'credit squeeze', 'credit catastrophe', 'credit emergency', 'credit calamity' or 'credit disaster' - all strong, emotive terms which at best are likely to depress people and at worse could panic people. So we became accustomed to the less worrying phrase 'credit crunch'. The credit crunch can be defined as the sudden reduction in the easy availability of credit or loans from banks or mortgage lenders resulting in far more stringent checks becoming conditional before bank loans will be approved. The 2008 credit crunch resulted in a reduction in the availability of credit - independent of any change in the official interest rates set by central banks. Both large corporations, small businesses and investors have suffered. The credit crunch resulted in a great loss of confidence in banks and investments with high cash withdrawals from investors seeking safe investments such as gold.

2007 / 2008 Credit Crunch Timeline of Events
The following following 2007 / 2008 Credit Crunch Timeline charts the major events that have led to the greatest financial crisis since the 1929 Wall Street Crash which also had a major impact on the U.S. and global economy.

Year - Month - 2007 / 2008 Credit Crunch Timeline of Events

2007 - July - Credit Crunch begins with the subprime mortgage crisis in the United States

2007 - August - US Credit Crunch goes Global due to the interaction of world banks and Hedge Funds who also have subprime mortgage backed securities

Aug 9: Debt, due to defaults by subprime mortgage payers, results in the European Central Bank injects 95 billion euros into the European banking market.

Aug 10: The United States Federal Reserve (Fed) injects 43 billion US Dollars

US Housing problem kicks in

2007 - September - US Interest rates lowered

British Government take over Northern Rock a major UK bank

Internet bank NetBank goes bankrupt

2007 - December - ECB lends European commercial banks $500bn over the Christmas period to help ease the credit crisis

Year - Month - 2008 Credit Crunch Timeline of Events

2008 - January - Down turn in stock markets

2008 - February - House prices continue to fall and jobs are cut

Houses continue to be repossessed

Leaders from the G7 group project worldwide losses from the US mortgage crisis could reach $400bn

2008 - March - March 16: Bear Stearns acquired by JPMorgan Chase avoiding bankruptcy

A £1bn hedge fund run by Peloton Partners collapses

2008 - April - Germany's Deutsche Bank warns of credit losses

2008 - May - Figures show that Retail and construction firms are hardest hit by the Credit Crunch

2008 - July - July 11: Indymac Bank is placed into the receivership

Banks report unprecedented losses

2008 - August - Washington Mutual, Morgan Stanley and Goldman Sachs come under pressure

2008 - September - September 7: Federal takeover of Fannie Mae and Freddie Mac

September 14: Merrill Lynch sold to Bank of America

Lehman Brothers go bankrupt

September 19: Bailout of the U.S. financial system by the Emergency Economic Stabilization Act of 2008 proposed by US Treasury Secretary Henry Paulson

September 23: Announced that the FBI investigating the possibility of fraud in 26 finance companies including Fannie Mae, Freddie Mac, Lehman Brothers and AIG

2008 - October - Europe sees effect of the credit crunch resulting in falling house prices, job losses and bankruptcies

The three major banks of Iceland are nationalized

Other European Bankspartially nationalized

Stock Markets fall

Global cuts in interest rates

In the UK Lloyds TSB allowed to start takeover plans of HBOS to avoid another Northern Rock style collapse with promise of support from British government

In UK the guarantee of bank deposits are raised from £35,000 to £50,000

G7 meet but fail to reach agreement

2008 - November - The US government agrees to rescue Citigroup

2008 - December - 1 December: The US recession is officially declared by the National Bureau of Economic Research

29 December: The US Treasury unveils a $6bn bail-out for GMAC (General Motors car loans)

Global stock markets report the biggest annual falls for 24 years

Credit Crunch

The above 2007 / 2000 Credit Crunch timeline provides details of the dates and major events that have led to the Global financial crisis - the Credit Crunch continues into 2009.

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