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A Nice Piece On The Credit Crunch

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It's pretty much a summary of what we know already. However these bearish stories in the Economist or FT always ensure a lively Friday afternoon discussion if left carelessly unattended by the water cooler. If you want to get creative, you could get your highlighter out... :rolleyes:


"...In less time than it takes to get a good compass bearing, cheap credit and stable markets have given way to investor panic and a credit crunch.

So far the central bankers have concentrated on stemming panic by flooding financial markets with short-term liquidity... Yields on ten-year Treasury bills dropped to 4.52% on August 28th while stockmarkets fell sharply, though shares bounced back the following day. Wholesale panic could quickly return.

...Most important, the economy’s weakest link—the housing market—was in even worse shape than many realised. The pace of new-home construction plunged in July while the backlog of existing unsold houses rose to a 16-year high. House prices have kept falling.

A still-deepening housing bust left the economy vulnerable well before August’s crunch. And that crunch has made the prospects for housing much worse as mortgage instruments have disappeared, or become dramatically more expensive.

...If America faces double-digit falls in house prices, the economy, despite looser monetary policy, looks set to be weak.

...Although the scale of reckless lending to risky borrowers was bigger in America than anywhere else, house-price inflation has been more extreme elsewhere. Countries such as Britain and Spain are particularly vulnerable to a house-price bust..."

Edited by Timm

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