The Credit Crunch

The Credit Crunch is a financial crisis which was started in US. It was initially due to a loss of confidence by investors in the mortgage and loan markets in the US. However due to the close interaction of banking institutions across the world the "credit crunch" resulted in a global liquidity crisis. The credit crunch can be defined as the sudden reduction in the easy availability of credit or loans from banks or mortgage lenders resulting in far more stringent checks becoming conditional before bank loans will be approved.

The credit crunch not only affects to big companies in particular, but also makes damage in nation scale in general. On 7 September 2008, two mortgage lenders of the US - Freddie Mac and Fannie Mae, forced to takeover by the government to avoid bankruptcy. This event continued to spark breakdown of other big names. On 15 September, the fourth largest investment bank of America - Lehman Brothers, after 158 years of existence has declared bankruptcy. Exactly 10 days later, Washington Mutual created the largest bank failures in history with total assets damage of $ 307 billion. Besides, due to the financial crisis, the number one investment bank of the US, Merrill Lynch was acquired by Bank of America. The government was forced to inject $ 85 billion into AIG, the largest insurance group in the world, in order to avoid financial market in the country with a worse outcome.

Iceland was the first country in danger of bankruptcy on a national scale. Government of Iceland had to close the stock market, and nationalized the leading banks. Since then, krona - the currency of this country depreciated severely and nearly wiped out. Besides, in Asia, the Korean economy also belonged to red alert when the won depreciated over 40% since the beginning of the year and was at its lowest level since the 1997 financial crisis. The Korean government had to make a number of emergency measures such as cutting interest rates and pumping money into the financial system. Moreover, many major economies, starting from Japan, and the EU reported to drop into recession. America, for the first time in eight years, has been recognized officially in this situation since 12/2007. The same thing happened with Russia, the 4th largest economic in the world. Oil prices declined dramatically along with the building needs went down. It led to a serious impact on two strategic exports of Russian - oil and metals; contributed to making this country into recession.

In general, the credit crunch spread to many countries around the world, leads to the financial collapse, recession, declining economic growth in almost countries in the global scale.