Credit Crunches, Moral Hazard, Fed and Interest Rates.
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Credit crunch is a term used to describe a sudden reduction in the general availability of loans (or "credit"), or a sudden increase in the cost of obtaining loans from the banks.
There are a number of reasons why banks may suddenly increase the costs of borrowing or make borrowing more difficult. This may be due to an anticipated decline in value of the collateral used by the banks when issuing loans, or even an increased perception of risk regarding the solvency of other banks within the banking system. It may be due to a change in monetary conditions (for example, where the central bank suddenly and unexpectedly raises interest rates or reserve requirements) or even may be due to the central government imposing direct credit controls or instructing the banks not to engage in further lending activity.
Background and causes
A credit crunch is often caused by a sustained period of lax and inappropriate lending which results in losses for lending institutions and investors in debt when the loans turn sour and the full extent of bad debts becomes known.[1] These institutions may then reduce the availability of credit, and increase the cost of accessing credit by raising interest rates. In some cases lenders may be unable to lend further, even if they wish, as a result of earlier losses.
The crunch is generally caused by a reduction in the market prices of previously "overinflated" assets and refers to the financial crisis that results from the price collapse.[2] In contrast, a liquidity crisis is triggered when an otherwise sound business finds itself temporarily incapable of accessing the bridge finance it needs to expand its business or smooth its cash flow payments. In this case, accessing additional credit lines and "trading through" the crisis can allow the business to navigate its way through the problem and ensure its continued solvency and viability. It is often difficult to know, in the midst of a crisis, whether distressed businesses are experiencing a crisis of solvency or a temporary liquidity crisis.
In the case of a credit crunch, it may be preferable to "mark to market" - and if necessary, sell or go into liquidation if the capital of the business affected is insufficient to survive the post-boom phase of the credit cycle. In the case of a liquidity crisis on the other hand, it may be preferable to attempt to access additional lines of credit, as opportunities for growth may exist once the liquidity crisis is overcome.
A prolonged credit crunch is the opposite of cheap, easy and plentiful lending practices (sometimes referred to as "easy money" or "loose credit"). During the upward phase in the credit cycle, asset prices may experience bouts of frenzied competitive, leveraged bidding, inducing hyperinflation in a particular asset market. This can then cause a speculative price "bubble" to develop. As this upswing in new debt creation also increases the money supply and stimulates economic activity, this also tends to temporarily raise economic growth and employment.[3][4]
Often it is only in retrospect that participants in an economic bubble realize that the point of collapse was obvious. In this respect, economic bubbles can have dynamic characteristics not unlike Ponzi schemes or Pyramid schemes.[5]
As prominent Cambridge economist John Maynard Keynes observed in 1931 during the Great Depression: "A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him."[6]
The 2007 subprime mortgage financial crisis is considered by many to have caused a credit crunch.[7]
http://en.wikipedia.org/wiki/Credit_crunch
Government announces $85 billion loan to save AIG
Tuesday September 16, 9:28 pm ETGovernment announces $85 billion loan to rescue AIG to stave off further financial turmoil
WASHINGTON (AP) -- In a bid to save financial markets and economy from further turmoil, the U.S. government agreed Tuesday to provide an $85 billion emergency loan to rescue the huge insurer AIG. The Federal Reserve said in a statement it determined that a disorderly failure of AIG could hurt the already delicate financial markets and the economy.Fed holds rates steady, spurning calls for cuts
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With Credit Crunches, it's about controlling credit, but seems like the Feds made out more loans to soon to be collapse financial institutions, lower interest rates (so that financial institutions could extend more loans). Doesn't this increase the moral hazard of management to act inappropriately, take higher risk than usual, because at the end of the day, there will be a white knight to come bail them out.
Credit crunch is about reining in credit, but here you see the Feds making loans to AIG and lowering interest rates to promote monetary expansion. The current catastrophe could be postponed to a future date yet to be known.
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(Credit Default)
wow Sing Tel appear in the list of 3 billion plus deal.
I dunt know if Sing Tel is the reference entity or a buyer or seller.
Pl sort this out before u buy or sell Sing Tel share.
http://www.dtcc.com/products/derivserv/data_table_i.php?id=table6
Section I:
Data on all live positions in the Warehouse as of specified date
» Select data on all live positions in the Warehouse as of specified dateGross Notional (US EQ) Total 33,557,901,575,685
Contracts 2,449,192
33.5 trllion is still outstanding or 3 times of US GDP!!