An article by Jeffrey Cane on Portfolio.com pins the birthdate of the credit crunch on last August 9th, when a call from a French bank pulled the rug out from under the U.S market. According the Cane, the credit market's issues had already begun last February, after the disintegration of the subprime mortgage market. The gravity of those issues wasn't revealed until French bank BNP Paribas stopped investors from withdrawing money from funds, claiming the market was too unstable for them to determine their holdings.
In a statement, the bank said--
"The complete evaporation of liquidity in certain market segments of the U.S securitization market has made it impossible to value certain assets fairly regardless of their quality or credit rating."This call sparked a landslide of rumors about problems at other banks and with hedge funds. People began to get worried, and the stock market illustrated their fear. This lack of confidence in the market caused banks to distrust other banks and investors to rely only in the safe zone. Getting a loan got a lot harder.
The aftermath of the credit crunch has been huge. Bear Sterns and Countrywide are gone, and the future of Wall Street is hazy. The re-vamping of Fannie Mae and Freddie Mac is just the start of a necessary total over-haul of this country's financial system.
Cane ends his article with a mention of how much financial pain the new President (Obama!) will have to deal with. President Bush has been downplaying the problem all along--constantly repeating that the economy is fundamentally strong, etc. That is, until the problem became too big to ignore. So how much of this is his fault?
No comments:
Post a Comment