Credit Crunch

Fin nance

Credit crunch h

Englishh

Credit cru unch = when n borrowingg money beccomes hardeer to get andd more expensive. In the present credit crisis, c bankss stopped len nding to oth her banks, th hen stoppedd lending to their t customers, which mean ns that theree is now a sh hortage of credit c and no n more cheeap credit.

Economic terms The Centraal Banks an nd Finance ministers are a trying to o decide wheether to injeect more mo oney into the financiial marketss. Man ny people no ow believe th hat we are now n headingg towards a downturn d / recession / depression d / financial crisis. Aparrt from the credit crun nch, there arre other sign ns that our economy migght slide into recession, such as rising in nflation and an increaseed cost of living. The goveernment maay respond by b cutting in nterest ratees / bringin ng down the rate of inflaation. To compound c the miseryy falling hou use prices m mean some home own ners face neg gative equity. Oveerall, the foreecast is pesssimistic or gloomy.

Perrsonal finaances Hig gh street baanks lend money m to customers in tthe form of loans or in the form off mortgages to buy houuses. Sub primee mortgages,, now often referred to as toxic mo ortgages, were w sold to p people with poor credit ratin ngs. It is a combination c n of this typee of risky leending, falliing house prrices and higgh interest rates which h led to defaaults on mo ortgage paym ments and fo oreclosures//repossessiions. This in n turn triggered th he global fin nancial crisis.

A number of banks havve already gone g bust or o have been n nationalized/bought by the goveernment who try to reassure cusstomers thatt their savin ngs accountts are safe. In I the UK, tthe governm ment has announcedd that all saviings accounts are guaran nteed up to a threshold of £50,000.. However, consumer confidencee is low.

English materialls by Veronica Gilhooly © Le earnwell Oy 2008

Finance

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