Credit Crunch Is A Year Old
The credit crunch has been with us for a year. The banks failed to see it coming after the US sub-prime crisis. They now seem to be waiting for recovery to begin in the US, instead of firing it up in the UK themselves. Boom and bust is back with us.
It is almost a year since the credit crunch took hold in the UK. The liquidity of the UK money markets virtually disintegrated overnight. Banks stopped lending to each other as none knew the extent of any others’ (or indeed their own) exposure to the sub-prime crash.
Northern Rock was the first and biggest casualty of the crunch, but the whole banking world has suffered. Banks in Britain have lost £140bn of their stock market value, and several have been forced to turn to shareholders and other institutions to raise money.
The fallout from that has been that mortgage and lending have been reined in, and the property market has almost ground to a standstill. Savings rates are not going up as fast as mortgage rates are, and consumers in Britain are being hit by the problems of the banking world just at a time when many of their other costs (such as food and fuel bills) are rising.
It is amazing to look back now and realise that the banks did not see this one coming. The fact that the US sub-prime market had collapsed a few weeks before did not seem to switch on any warning lights for UK banks – or maybe they knew what was coming, but knew they could do nothing to prevent it. It was only when US banks began to admit to huge losses (Bear Stearns was one of the first) that people started to realise the possible crisis that was coming.
Many experts suggest that we are still only half-way through the crisis, and banks are still suffering losses. The more they try to claw back from consumers through higher mortgage rates or lower savings rates, the more they will alienate customers. The property market is frozen due to the lack of available mortgages. The way to get things moving again is to put a few bargains on the table. However, most of the banks seem reluctant to take that particular lead. They are waiting for things to turn round in the US, where house prices are still going down.
