THE DECIMATION OF INVESTMENT BANKING, FOLLOWED BY A SERIES OF COMMERCIAL BANK FAILURES AND SUBSEQUENT RESCUES OR NATIONALIZATION IN BOTH THE U.S. AND EUROPE, ARE JUST THE LATEST DEVELOPMENTS IN A DEVASTATING FINANCIAL CRISIS, KNOWN AS THE CREDIT CRUNCH
BY SYLVIA JAMES
| Today's credit crunch is vitally significant to us all, and its resolution critical to our future. This article is a primer for information professionals, explaining clearly what this most damaging of all crises in our working and personal lives is all about and why we, of all professionals in our companies and organizations, should understand all the details and implications. We should be able to research any aspect of the issues, players and developments and play our parts in helping to understand the implications in our workplaces and family life. |
I have been following the progress of this credit crunch since it started. When it began last summer, it seemed to me very like a crisis I lived and worked through in the early 1970s in London at the beginning of my career. Known as the "lifeboat," the then-UK regulator of banks, the Bank of England, saved a group of British banks called the secondary banks. These rather odd financial institutions specialized in extending credit to borrowers that had taken out second mortgages (and so had lesser claims on the real estate collateral for the loans) on their properties. A financial bubble had happened. It was built on cheap loans and easier credit regulation based on real estate, which had artificially escalated in price during the years preceding the crisis.
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