Credit crunch

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  • Publicado : 21 de noviembre de 2010
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The term Credit Crunch entered the vocabulary used by most of the people in working age, becoming in a frequent topic of discussion and even entering the OxfordDictionary (2010) where it is described as “a sudden sharp reduction in the availability of money or credit from banks and other lenders”. According to Budworth (2010) itis unclear who invented the term Credit Crunch, but he states that it was first used by the America’s Federal Reserve Bank in 1967.
On the beginnings of the 90’s untilmiddles of the first decade of 2000, the combination of low interest ratings and the facility of acquisition of loans took to an unavoidable buying frenzy(Mayerowitz:1998). After years and years of excessive loans, especially in the United States, where even persons without an effective job or no job at all could get a loan quiteeasily, created a huge debt bubble (Budworth:2010). This high risk loans became known as subprime lending and was popularized by the media during the Credit Crunch of2007.
The majority of the loans occurred on the acquisition of properties, once the interest rates of the mortgages were incredibly low and it was relatively easy toremortgage the property in case of the inability to meet the payments. The banks felt really confident lending the money due to the collateral of the loan, in otherwords, they knew that in a matter of a couple of years the property would be worth much more.
On 2004 the interest rates reached their lowest level on the U.S. atjust 1%. However, on middle of this same year, the interest rates started raising causing troubles on the mortgage payments and the reduction of properties prices.
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