Credit Crisis 101 – The Cause of the Credit Crisis

The world is facing a growing credit crisis. How has it come to this? When did it start and where is it going? Generally speaking, the subprime mortgage crisis is associated with the reduced liquidity in the credit market in correspondence with troubles pertaining to the banking system. To go along with this, a struggling real estate market with  decreasing values of property in combination with bad lending practices, among other downfalls, has compounded the credit crisis.

Although the credit crisis has been brewing for quite some time, it started to rear its head during the latter part of 2007 and throughout 2008.

When did the actual credit crisis begin? While it is difficult to pinpoint an exact date, most experts agree that the start was the bursting of the housing bubble in 2005 and 2006. In years prior, mainly from 2000 to 2005, lenders lowered their lending standards and the housing market boomed. But once interest rates began to climb and the value of homes took a turn for the worse, the bubble burst and the credit crisis began.

To go along with problems within the real estate market, there are many other issues that have led to the credit crisis. Some of them include high risk loans, inaccurate credit ratings, fraud within the mortgage industry, bad government policy and the difficulty of banks in putting a value on the rising debt on their books.

Currently the liquidity of cash is based on global investment banking principles which allow banks to borrow inexpensively. They turn their debts into securities which they then sell on. But it has become increasingly difficult to put a value on that debt. Banks currently need a way of continuing to keep their doors open and do business, though they have large quantities of debt on their books, which they cannot value. The difficulty in valuing the debt is the root of the current banking crisis.  For this reason the United States government is providing some liquidity for the markets by creating government backed vehicles to acquire the bad debt from these financial institutions.

As you can imagine, these are not all problems which can be addressed and fixed in a short period of time.

Take for example the government policies that were and still are in place. Many experts feel that they are outdated, and simply not able to handle the current economy. In September 2008, President George Bush said, “Once this crisis is resolved, there will be time to update our financial regulatory structures. Our 21st century global economy remains regulated largely by outdated 20th century laws. Recently, we’ve seen how one company can grow so large that its failure jeopardizes the entire financial system.”

It is no secret that government policies and related structures are outdated and in dire need of change. But as President Bush stated, it is difficult to move forward with these changes in the midst of a credit crisis.

The current credit crisis has been a long time coming and it will be a long time fixing. For more information on the crisis and related details, take a closer look at the subprime mortgage crisis article at Wikipedia.  This article gives a detailed account of all the major events and issues that have given rise to the current financial state of affairs. In addition the article is always being updated with the latest financial events and policy adjustments.

If you are interested in finding the best low interest credit cards go to our site www.credit creator.com and take a look. The interest rate details are constantly being updated with the newest information and the current prime interest rates.

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Credit Crisis Articles:

Commercial Mortgage Refinance – Difficulties Due to the Credit Crisis - Thu, 02 Sep 2010
Multifamily apartment loans are easily available from banks and other loan providers. Numerous troubles can arise while commercial mortgage refinance. These difficulties arise as the result of the credit crisis faced by the entire economy.

Lehman's Fuld to Testify Sept. 1 for Panel Probing Credit Crisis - BusinessWeek

The Hindu

Lehman's Fuld to Testify Sept. 1 for Panel Probing Credit Crisis BusinessWeek The Financial Crisis Inquiry Commission, formed by Congress to probe the causes of the worst economic collapse since the Great Depression, will hear from ... Ex-Lehman boss accuses Fed of worsening crisis Independent Fuld: Uncle Sam saved everyone but Lehman New York Post Fuld Says US Used `Flawed Information' to Deny Aid Bloomberg Bobsguide (press release) �- New York Observer �- The Guardian (blog) all 1,596 news articles��

Bair Says Dodd-Frank Could Prevent Replay of Financial Crisis - Bloomberg

Reuters India

Bair Says Dodd-Frank Could Prevent Replay of Financial Crisis Bloomberg ... the government let New York-based Lehman fail during the credit crisis while assisting takeovers of firms including Wachovia Corp. and Bear Stearns Cos. ... FDIC Chairman Bair before the Financial Crisis Inquiry Commission LoanSafe In 2008, a run on deposits sent Wachovia reeling Charlotte Observer all 26 news articles��

Wall Street Job Pays Off for Salary.com - Seeking Alpha (blog)

Wall Street Job Pays Off for Salary.com Seeking Alpha (blog) ... much rougher go of it during the Credit Crisis, and probably wouldn't even have fetched the $80m that it got in its sale to Kenexa, or any other buyer. and more��

US commercial paper market shrinks a 2nd week -Fed - Reuters

US commercial paper market shrinks a 2nd week -Fed Reuters The market is at its smallest size in two months and is roughly half its $2.2 trillion peak in August 2007 when the credit crisis broke out. ... and more��

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