What's the subprime crisis ?

Question

What's does that subprome crisis in usa?'
I can read on this every newspaper. but i still don't understand what does that mean exactly. especially it influenced to Asia Stock Market, something...please let me know...

Answer 1

It means no more cheap credit for consumers. This turns into higher interest on credit cards, home loans, car loans, lines of credit, etc...

basically what started it was banks gave home loans of 100k and more to people that couldn't handle a $500 limit on a credit card. People assumed that they could pay the debt with the equity in their house. Which unfortunately isn't worth anything because to obtain the money in their home they (the owner) would have to sell the home.

Basically it was a modification on what is called in the scam industry as a Ponzi scheme. Only the first people in an out were the one to benefit. The rest of america, or the 7 million people left in the scheme are the ones getting the shaft. Because they get the shaft it means trillions of dollars in funds the banks can't possibly afford to cover because now the banks own the homes and with no one paying for them it becomes a problem.

So what happened last week was the US govie and other govies created a buttload of money they didn't have and poured it into the banking systems everywhere. It only delays the economic crash coming, some banks though weren't so lucky and are in the middle of chapter 11 proceedings or trying to arrange bankruptcy protection.

If you lived in the early 90's and late 80's we were hit by massive unemployment and home loan interest rates in the 14-18% range. The entire building market fell flat and thanks to the guidance of the last VP and President Bush Sr, left the place in a total mess.

Surprised it's happening again...I'm not.

Answer 2

A bought a house. A had a lot of other debt like credit cards and school loans. A refinanced her house to the max with B to put all of those loans in one place at a 30 year amortization at lower than the interest was before. Interest rates rose, and then A was paying more interest on that other debt than before. A couldn't make the payments. A lost her house. B had already sold her loan to C. C got the house back, and sold it for less than the debt. A's credit is ruined because she now owes money for a house she no longer has. C lost money because they'll never get the money from A. C doesn't have payments coming in, and can't make payroll.

Basically a lot of people are losing their homes because they took loans they shouldn't have taken, and a lot of mortgage companies are in trouble because they made loans they shouldn't have made.

It's impacting others who want to buy houses, but the mortgage companies are scared of making loans, bringing prices down, impacting sellers who may decide to walk away from their house rather than sell at a loss.

People with really good credit and sufficient cash are poised to make money by buying bargains, and holding them till things calm down.

That always happens in a panic.

Answer 3

Subprime lending...all those financial companies which lend money to people with "credit challenges" at the low rates and high prices, now the going in a nosedive because those clients are unabble to pay back the loans. Now, all those companies borrowed the money from other and bigger banks , mostly from Asia, (China specially).

Answer 4

It comprises of a variety of issues, but to make a long story short, after the recession in '01 the Federal Reserve and other central banks reacted by cutting rates and this contributed to a large amount of "easy money," money available to be borrowed at low interest rates. The trick was, a lot of these loans were made by individuals who could not have afforded the loans at higher interest rates-since the loans were at "variable" rates (rates that are subject to change as interest rates change-usually benchmarked to the London Interbank Offer Rate, or LIBOR). As rates rise (and the variable rates rise with them) a certain amount of individuals who borrowed money for homes, and to a lesser extent credit card debts and cars, now can no longer afford to pay the loans, and the companies which made the loans are faced with a crisis. Many investors and hedge funds who bought stock in companies like Countrywide and others borrowed money, directly or indirectly, at a low interest rate from the one economy who has very low rates-Japan. But in the beginning of this year, rates began to rise there as well, from .25 to .50 %-still very low, but it encouraged many of these high-risk investors to reevaluate their risk premiums, pull their money out of the riskier investments, and pay off their yen loans. That was the first correction back in Feb.-March, but the other shoe fell in July when doubts began to arise about the real abilities of the masses who won't be able to pay off their mortgages with higher interest rates, as Japan talked about raising rates to the highest in over ten years and the European Central Bank and Federal Reserve began to hint at rate rises as well. A French Bank, BNP Paribas, said that it would freeze fund redemptions on several large hedge funds that had US subprime exposure. More recently, a futures brokerage, Sentinel, said that it was declaring bankruptcy. Can you imagine putting your money in a brokerage account and finding out that you are not going to be allowed to take it out? Scary-and that is the root of the subprime crisis-things like that which are really just functions of defaulting loans hit everyone if there is fear of a bank run, a time when individuals all run to banks and brokerages to take their money out because they no longer have confidence in the system. That is what is scaring people, and there are other angles, but one could write a book on the subject. I trade equities and foreign exchange so that is my angle. Write me if you have other questions.

Answer 5

subprime means loans given to people with less than good credit. problem is, they are defaulting on their loans and couldnt pay their mortgage so people are losing their homes and the banks/lenders arent getting their money which is causing them to go out of business and its killing the market cause investors invested in these loans