What Is The Result Of The Credit Crunch?

The Credit Crisis started within the US housingmarket , specifically the bad-credit segment of the mortgage market. The crisis soon spread to the rest of the US economy and ultimately the contagion effect resulted in the whole global financial system bearing the brunt of this financial crisis.

Many economic experts maintain that this is the worst financial crisis since the Great Depression , the credit crisis has had the following impact on the world’s major markets and economies ;

Housing markets have performed poorly with several markets even reflecting negative growth resulting in negative equity. What this means is that many homeowners are facing a situation where their outstanding mortgage loan is more than the market value of their home.This is a unhappy situation for homeowners and many homeowners simply give up and return their keys to the bank – hence the term jingle mail.

This is not a good situation for home owners or the lenders as the banks don’t really want to foreclose on millions of homes , they are in the business of providing mortgage loans and not owning homes. From the owners point of view it is not a great idea to lose one’s home and more often than not they are faced with a bad credit score and sometimes even worse. The US government has instituted various programs to help homeowners stop home foreclosure such as various mortgage modification schemes etc.

Although the crisis started off as a financial crisis caused by Wall Street it soon affected Main street and the disastrous effects have resulted in poorer economic growth , high unemployment and weaker credit extension. The hardest hit in the business sector have been small business owners and start-ups who find it difficult to raise finance and even maintain their existing finance as banks call in their loans. Raising business finance is next to impossible and many small businesses face bankruptcy and financial crisis.

Millions of ordinary people have been left jobless as businesses adjust their employment levels to reflect the economic climate. This is a vicious cycle because as businesses downsize and retrench consumer demand weakens perpetuating the weaker economy. Unemployed people are unable to pay their mortgages or spend and most economists agree that consumers are crucial to any economic recovery.

Although this has been the worst financial|economic|credit} crisis since the Depression , most Central Banks and Governments have reacted swiftly and decisively in dealing with the crisis so the effects will be less severe than those experience during the Depression and other recessions. We are already starting to see positive signs during early 2010 and signs are that emerging markets are fairly robust and should assist in stimulating the global economy.