Quote:
Originally Posted by Coatsy
I thought that was the cause of the credit crunch in europe and the UK? Investors and banks purchased a lot of these (bad investments) which resulted in the credit crunch
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The CDO's were created because of the the home problem Coatsy - it's a brokerage house/bank method of unloading their bad debt problem on to the public. The predatory/greed conduct of lenders was the core problem - ie where they gladly dumped mortgages on folks who had little hope of paying mortgages. (Always think that is totally immoral and little better than loansharking. Forgetting the money angle, - it causes severe problems on a personal basis for many people.)
Then, when the foreclosures started - banks were left with (least up till now), around $750 billion of real estate on their balance sheets which is declining in value. So... they pulled in brokers and repackaged that debt in fancy paper and ribbons and the brokers have now been offloading these CDO's to the public.
It kinda makes you wonder what lenders were thinking when they elected to issue funds to people outside the normal lending criteria - and whether there already was a problem ahead for banks. Tho, it's generally thought to be just a predatory plan accompanied by irrational exhuberance.
Sure.. inter-bank lending has left a fair number of non-US financial institutions with debt problems - along with any foreign banks operating within the US. These banks include HSBC and Barclays - if they have not already made a statement of losses, chances are they will shortly. Tho think HSBC has indicated a figure of one $1billion? (They got off light and can stand that loss). It's inevitable a number of banks then purchased the worthless CDO's which were never properly rated - so, yet another hit (or is it a fraud?
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It appears the UK scenario is basically much the same - banks got this weirdo idea of predatory/enthusiastic lending and tapping into the sub-prime market. It's nowhere as bad as the US home lending - but sure to create plenty problems and bad debt - especially in 2008.
Now we all got credit crunches floating about
These may have different backgrounds - the UK side is more related to the Central Bank upping interest rates to counter sub-prime lending and this appears to be working OK - so far (noticed there are mumblings that interest rates may actually drop soon). The US side is not so bright in that there is a lowering of interest rates thru necessity - but at least US banks are getting more stringent on loan/mortgage issuing.
Only my
- 2008 is going to be a foul year for any western economy and will vary depending on how much of a grip they have on fiscal policy.
PS Hold off on that purchase till the market bottoms out
