credit crunch - what exactly is the problem?

Discussion in 'Economics' started by turbodog, Nov 20, 2008.

  1. turbodog


    I don't get it, what exactly is the problem. I can get the mortgage, I can get credit card, auto loan. My income is stable. What is credit crunch then? Can you explain for "dummies" what exactly is going on with financials right now.

  2. that what I've been saying all along since June 2007. There is all this talk of crisis, credit crunch, recession but nothing has really changed.

    If you want a good summary of the so called 'crisis' look it up on wikipedia. It mostly involves a minority of homeowners who couldn't pay their mortgages due to falling home prices, which is dragging down stocks.
  3. I'll agree with the "mortgage" as i just got one in August, but I tried for a secured loan and was denied with a 700 fico score. So if banks will not lend when you put up collateral, Imagine trying to get credit without. Its not about the people trying to get home loans, its the businesses that need credit to run their day to day operations that are having trouble.
  4. Your credit score must be high, no? The banks will lend to you but not to each other, they can't tell who's solvent.
  5. I have a 725 fico and just got an investor mortgage in san diego entirely with self employed income. Gave them all the docs, but I believe the lender didn't even pull my tax return to verify. That closed Oct 20th.
  6. TGregg


    Yeah, I can. When people say credit crunch it sounds like they mean nobody is willing to lend money. But that's not entirely correct.

    If Banker Bill has some money to lend, he'll give you a mortgage (with the usual caveats about being a good risk). Problem is, Banker Bill doesn't give mortgages in a lot of cases. Mortgage Agent Sam is in the business of making mortgages. He borrows from banks to make a small stack of mortgages, then sells a pile of them to somebody else. That somebody else does some processing, and resells slices to various others. And it gets processed and sliced and refigured to no end.

    The basic problem is we have all this credit sliced and diced, tranched and "insured" and basically ultra-processed until nobody really knows what any particular structure really is worth. It might be subprime Golden West Pick-a-pay behind that. Or it might be some good stuff, but insured somewhere along the line by some outfit that also insured some nasty debt and they'll fold when the nasty debt hits the fan so their insurance isn't worth beans on the good stuff.

    It's like somebody pissed in the wheat fields when nobody was looking, and the flour was sent who knows where to be made into who knows what and now nobody wants to buy bread.
  7. richrf


    The credit crunch can be defined as follows:

    1) Those who are creditworthy (corp and individuals) don't want nor need to borrow.

    2) Those who are not creditworthy are in deep trouble and would like to borrow, however ...

    3) The banks cannot offload this junk credit anymore like they did over the last five years, because the rest of the world is on the the investment bank/rating companies scam that was perpetrated by the U.S. financial system onto the investors of the world. Corporations, investment banks (that no longer exist), and S&P/Moody's/Fitch are considered a bunch of scoundrels and Paulsen is considered the worse of the bunch. The head of the Chinese Sovereign Wealth fund described our financial system (which includes the totally untrustworthy rating agencies) as "shit". Very appropriate.

    Until we restore confidence in our system, and we stop trying to pawn of junk credit as AAA credit to the rest of the world, they will not lend money to us. As a debtor nation we are totally at their mercy.
  8. jordanf


    credit crunch = having actual lending standards
  9. richrf


    That's just about it.