In beginning of August the ECB had to intervene in the European market for the first time because of the credit crisis which has her origin in the United States reached the European money market. The European central bank made an injection of 150 billion euros to keep the liquidity upright.
Furthermore the ECB has loaned 350 billion euros to avoid a liquidity crisis in the inter-bank market. With this step the ECB accomplished that short-term interest rates didn’t get as high as the long-term rates in the market. With these money injections the ECB tried to prevent a collapse of the stock markets and to minimize the spread of the credit crisis in the European market.
The European central bank 90 billion euros of loans available.
The main concern of the banks was and is that the inflation gets to high and they are trying to keep the rate as low as possible. The main goal of the ECB was to keep the interest rate low. The European central bank has done it with to raising the interest rate higher than 4 %. So the Fed raised the interest rate higher and didn’t give that high priority to the economic growth and this is a difference between the ECB and the Fed. But nevertheless the ECB has to count on changes and the bank tries to ensure the short term stabilization of the market instead of worrying about the medium term forecasts.
The ECB lent money to other banks or people without any limit or penalty the bank also guaranteed unlimited two weeks loans at the fixed rate of 4.21%. Normally the ECB fixed the amount that they are going to lend. And experts are no sure if this was the right respond to the crisis and the Fed thought about lending against mortgages. Even if central banks can produce unlimited amounts of money they are not really able to bring down the differences between the benchmark policy rates and the rates that each bank bills the other for short-term loans.
In January the director of the central bank said that another interest rate increase is possible and the director of the Fed said he would cut the rate because he fears recession. But till this point the ECB kept the rate at 4%.
Montag, 21. April 2008
Montag, 7. April 2008
steps of the federal reserve and the government blog 3
The Federal Reserve, which is the U.S. central banking system and other central banks all over the world took some steps to keep the extent of the crisis as small as possible.
The first step of the Federal Reserve was to keep the market as liquide as possible so they printed more money which led to an inflation which means that there is much more money in the market nur the value of it decreases and the second step was to follow the ambition of the marcoeconomic objectives through monetary policy.
And the during the summer of 2007 different such as the fderal funds rate and the discount rate had been lowered and the federal open market committee feared that the interest are going to go down as well. The Federals Reserve accomplished open market operations which means that Fed controls the national money supply in order to ensure a liquidity in the market.
Furthermore the other banks finally lowered the interest rates on loans which they charged for member banks. To keep a liquidity in the market the Fed also offered short-term loans by using the Term auction facility. This is an auction where the Federal Reserve sell funds to institutions and the Fed announced repurchase agreements.
Furthermore the Fed started to lend money to more institutions and accepted more people to give them a loan. The Federal Reserve took many steps to prevent the worse case senario, a recession the last thing they did was to provide funds and empowered J.P. Mogan to buy Bear Stearns.
The government announced a plan which can be followed voluntarily to freez the mortgages because many homeowners had been afraid that the mortgage rate goes up. So the government collaborates with the private industry to help the people and the plan is called the Hope Now Alliance.
Regulators and legislators also had taken some actions to support the people who are affected by the crisis. For example tax policies, affordable housing, bankruotcy protection, education and the licensing and qualifications of lenders.
Furthermore the government encouraged financial institutions to make less risky decisions. That means the these institutions should not borrow money to buy bonds or to do other investments.
And there are credit rating agencies which informes people about the risks by making other investments. For examples the risks that are involved by mortgage-backed securities.
The first step of the Federal Reserve was to keep the market as liquide as possible so they printed more money which led to an inflation which means that there is much more money in the market nur the value of it decreases and the second step was to follow the ambition of the marcoeconomic objectives through monetary policy.
And the during the summer of 2007 different such as the fderal funds rate and the discount rate had been lowered and the federal open market committee feared that the interest are going to go down as well. The Federals Reserve accomplished open market operations which means that Fed controls the national money supply in order to ensure a liquidity in the market.
Furthermore the other banks finally lowered the interest rates on loans which they charged for member banks. To keep a liquidity in the market the Fed also offered short-term loans by using the Term auction facility. This is an auction where the Federal Reserve sell funds to institutions and the Fed announced repurchase agreements.
Furthermore the Fed started to lend money to more institutions and accepted more people to give them a loan. The Federal Reserve took many steps to prevent the worse case senario, a recession the last thing they did was to provide funds and empowered J.P. Mogan to buy Bear Stearns.
The government announced a plan which can be followed voluntarily to freez the mortgages because many homeowners had been afraid that the mortgage rate goes up. So the government collaborates with the private industry to help the people and the plan is called the Hope Now Alliance.
Regulators and legislators also had taken some actions to support the people who are affected by the crisis. For example tax policies, affordable housing, bankruotcy protection, education and the licensing and qualifications of lenders.
Furthermore the government encouraged financial institutions to make less risky decisions. That means the these institutions should not borrow money to buy bonds or to do other investments.
And there are credit rating agencies which informes people about the risks by making other investments. For examples the risks that are involved by mortgage-backed securities.
Montag, 25. Februar 2008
blog2- the spread of the credit crises
Blog 2 – How has the crisis spread? – you will need to cover what has happened between September and today and explain how and why other sectors of business and the economy started to become affected.
Many other sectors are affected from the credit crisis for example the stock market were the Dow dropped and in many other countries there also occurred drops on the stock market, financial institutions like banks and many others made looses of billions of dollars and many also went bankrupt or need to make merger deals, home owners the house prices are low like they had never been before and almost nobody is buying new houses and the rent prices dropped as well.
And the housing market is also still affected even it is not that bad in Europe but in the UK the house prices also decreased because also buyers are scared to invest in the housing sector.
First it was just the sub- prime mortgage sector in the US then it spread to almost every bank in the US and Europe which had invested in this sector. Some of the most important banks like UBS lost billions of dollars.
After some time the crises spread to other firms like the Financial Guaranty Insurance Company which insure bonds got in trouble because they lost there credit rating that guarantees a structured security on bonds.
Some newspapers wrote that there is another potential crisis in the huge market in securities that insure against defaults on companies credit. These are new financial instruments that are supposed to cover banks losses
Now the defaults in the US housing market are not only affecting the sub prime houses anymore they are also spreading to the top housing market and now the banks and investment funds have to face much higher losses.
US house prices have fallen but they still keep falling.
Experts say that the default rates on the outstanding loans in the US are higher then a long time before. If the default rates are going to rise this can cause financial damage.
Furthermore they say that the banks are trying to protect themselves and so the still borrow money to companies but they say the market has to shut down otherwise the credit crunch will never find an end.
Now banks have not the liquidity like they were used to and they have to realise that they can not “safe” everyone.
Banks only leading to each other at a very high rate
The credit crisis is now also spreading to student loans and car dept.
Now there are similar problems in Europe too especially in Spain, Ireland and Britain.
Many sectors are now influenced especially in the European countries like the US have too high CO2 emissions so they really need to switch to “green energy” but costs will raise and because the dollar is so weak at the moment because of the credit crunch the UK’S is not able to afford it at the moment.
In November 2007 the crisis already started to spread in other sectors of consumer credits with losses of 445 billion US dollars.
Analyst at this time had been afraid that investors are starting to worry and that the crisis will spread in other sectors and exactly that happened. At this time that the losses in sectors like credit cards, auto loans non-subprime mortgages could reach 147 billion US-dollars. All this changes would lead to a high unemployment rate and a reduction in the economic growth. At this time analysts were still pretty optimistic concerning to the total economy.
Even if the results from the crisis seem to have a bigger effect on the US the credit crunch has shown that there is little refuge from today's worldwide economy. In the finacial sector the credit crunch will lead to jub cuts in companies and cities will not get any support from the government anymore. So maybe there will be less revenue and so the community has to suffer because they earn less money and that leads to that they spend less and this is like a spiral that maybe will not end for a long time.
Many other sectors are affected from the credit crisis for example the stock market were the Dow dropped and in many other countries there also occurred drops on the stock market, financial institutions like banks and many others made looses of billions of dollars and many also went bankrupt or need to make merger deals, home owners the house prices are low like they had never been before and almost nobody is buying new houses and the rent prices dropped as well.
And the housing market is also still affected even it is not that bad in Europe but in the UK the house prices also decreased because also buyers are scared to invest in the housing sector.
First it was just the sub- prime mortgage sector in the US then it spread to almost every bank in the US and Europe which had invested in this sector. Some of the most important banks like UBS lost billions of dollars.
After some time the crises spread to other firms like the Financial Guaranty Insurance Company which insure bonds got in trouble because they lost there credit rating that guarantees a structured security on bonds.
Some newspapers wrote that there is another potential crisis in the huge market in securities that insure against defaults on companies credit. These are new financial instruments that are supposed to cover banks losses
Now the defaults in the US housing market are not only affecting the sub prime houses anymore they are also spreading to the top housing market and now the banks and investment funds have to face much higher losses.
US house prices have fallen but they still keep falling.
Experts say that the default rates on the outstanding loans in the US are higher then a long time before. If the default rates are going to rise this can cause financial damage.
Furthermore they say that the banks are trying to protect themselves and so the still borrow money to companies but they say the market has to shut down otherwise the credit crunch will never find an end.
Now banks have not the liquidity like they were used to and they have to realise that they can not “safe” everyone.
Banks only leading to each other at a very high rate
The credit crisis is now also spreading to student loans and car dept.
Now there are similar problems in Europe too especially in Spain, Ireland and Britain.
Many sectors are now influenced especially in the European countries like the US have too high CO2 emissions so they really need to switch to “green energy” but costs will raise and because the dollar is so weak at the moment because of the credit crunch the UK’S is not able to afford it at the moment.
In November 2007 the crisis already started to spread in other sectors of consumer credits with losses of 445 billion US dollars.
Analyst at this time had been afraid that investors are starting to worry and that the crisis will spread in other sectors and exactly that happened. At this time that the losses in sectors like credit cards, auto loans non-subprime mortgages could reach 147 billion US-dollars. All this changes would lead to a high unemployment rate and a reduction in the economic growth. At this time analysts were still pretty optimistic concerning to the total economy.
Even if the results from the crisis seem to have a bigger effect on the US the credit crunch has shown that there is little refuge from today's worldwide economy. In the finacial sector the credit crunch will lead to jub cuts in companies and cities will not get any support from the government anymore. So maybe there will be less revenue and so the community has to suffer because they earn less money and that leads to that they spend less and this is like a spiral that maybe will not end for a long time.
Montag, 11. Februar 2008
causes for the credit crises
The subprime crises was bank crises which started in July 2007 because the prices of house which were increasing all the time start to decrease and more and more credit users couldn’t pay back the money anymore. At the beginning there were only the subprime loans were affected which means they have a defective creditworthiness.
So on the beginning of the summer 2007 people in US were not able to pay the money back for these loans and this was the first time since several years and these caused a permanent increase of the interest rate but the prices for the houses decreased.
So the banks borrowed too much money and now they have liquidity problems. So the banks doesn’t really have earnings anymore and banks don’t want to lend money to each other anymore and this leads to a credit crunch, which means there is to less money supply which causes a recession.
To deal with loans or mortgage is really risky business and these were also the first ones who were affected when loan takers could pay back the money anymore. Banks and other financial institutions make losses in the amount of many billion US $.
Because of this investment banks also made loses and private or institutional investors got willingness to take risks. That means they took out there money from the capital market or didn’t make new investments. Because of the crises there was a high liquidity requirement and that led to an increase of the money market rate.
So the money market rate rose and the investors stop investing so banks didn’t get any money. The central banks from many nations had to offer billions of dollars to the money market so the market had certain liquidity so the central banks prevented a common credit crisis.
So on the beginning of the summer 2007 people in US were not able to pay the money back for these loans and this was the first time since several years and these caused a permanent increase of the interest rate but the prices for the houses decreased.
So the banks borrowed too much money and now they have liquidity problems. So the banks doesn’t really have earnings anymore and banks don’t want to lend money to each other anymore and this leads to a credit crunch, which means there is to less money supply which causes a recession.
To deal with loans or mortgage is really risky business and these were also the first ones who were affected when loan takers could pay back the money anymore. Banks and other financial institutions make losses in the amount of many billion US $.
Because of this investment banks also made loses and private or institutional investors got willingness to take risks. That means they took out there money from the capital market or didn’t make new investments. Because of the crises there was a high liquidity requirement and that led to an increase of the money market rate.
So the money market rate rose and the investors stop investing so banks didn’t get any money. The central banks from many nations had to offer billions of dollars to the money market so the market had certain liquidity so the central banks prevented a common credit crisis.
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