Timeline of the Credit Crunch

Introduction
Recent economic events have resulted in a severe shortage of credit in some of the worlds largest economies – particularly in the US and in Europe.

What does "Credit Crunch" mean?
The Credit Crunch is a severe shortage of credit. It has meant that banks and other financial institutions have dramatically cut the amount of credit they are prepared to offer to each other and to commercial businesses and to customers.

What are the results of the Credit Crunch?
As a result of the credit crunch, businesses are finding it much harder to get external finance to support their business activity. Even though most of the problems caused so far have been in the US and in Europe, stock markets around the world - including the HK Hang Seng Index- have seen major price falls as shareholders expect less credit to reduce business activity which will lower business profits.

What is in this article?
This article explains the timeline of events during the Credit Crunch.

The article says that the crunch was “pinpointed as 9 August 2007 when bad news from French bank BNP Paribas triggered sharp rise in the cost of credit”. It also reminds us that the problems started a lot earlier. As early as 2006 , "Default rates on sub-prime loans - high risk loans to clients with poor or no credit histories - rise to record levels".


In an earlier article on the Credit Crunch, it was the US Government that chose to deregulate its financial markets , thus allowing US financial institutions to offer ‘sub-prime’ mortgages for people who under the old, stricter regulations, would not receive mortgages. As US interest rates began to increase , many people were unable to repay their mortgages, and as the atricle states, panic really began to set in after April 2007 when "New Century Financial, which specialises in sub-prime mortgages, files for Chapter 11 bankruptcy protection and cuts half of its workforce"