Anywhere in the world, when banks report how their systems are suffering from financial crisis as consequences of gigantic losses, expect that there is a great fallout, too, not only in the real estate and other industries but as well as in world economy.
It has shocked and scared the globe, especially people engaged in the financial markets, when premier banks have declared huge losses that eventually have resulted to an immediate halt of cash flow in the real estate industry called the credit crunch. So which banks gained enormous losses?
Banks from all over the world: US banks Citigroup, Bank of America, Wachovia; Europe’s UBS AG or Swiss Bank Corp. and Union Bank of Switzerland; Japanese banks like Sanwa Bank Ltd, The Long-Term Credit Bank of Japan, Industrial Bank of Japan Ltd; The Royal Bank of Scotland, a British bank.
Who would even think that Citigroup, the premier consumer-banking franchise and key player, is capable of drawing a fault line in their financial system? All of the banks mentioned have revealed billion dollars of losses from credits or problem bad loans. Let us face it. When credit crunch happens, the entire economy is definitely affected; fund shortage will freeze many business entities because financing acquisition is like waiting for the star to fall. Borrowing will be as hard as anyone could ever think of.
The real estate market has been badly beaten by this credit crunch faced by US economy. Both small and big players in the mortgage business are consequentially affected by the declaration of bank losses. Brokers, for one, have been caught in-between by this sudden fallout; they have to pull out some programs for mortgaging, so they will not be agitated and engaged in bootstrapping costs to maintain other running loan programs.
The victims of credit crunch, of course, are evident. Borrowers, who else? Mortgage releases have become hard as a rock; stiff credit regulations have been implemented. The borrowers’ nightmare has started with residential sales at below-the-average rates, just to put up with their timely payments. Nevertheless, with the crisis on housing projects, it is still difficult to gather buyers with ready cash to make purchases, so most borrowers end up filing bankruptcy or foreclosure.
But the question whether credit crunch is really hurting the condition of world economy remains to be seen. According to the Federal Reserve analysis, credit crunch has only affected the real estate market; its effect on world economy is so far only limited. Positive feedbacks have been seen in the employment industry and in retail sales. However, slow sales have taken effect on furniture, manufacturing, and automobile businesses. Even with the worry about inflation rates, minimum changes in prices have been noted down.
Although US credit crunch seems to be a major blow in the financial markets of countries like Canada, few from Europe and Asian nations, the crisis hardly hit other countries like Russia, Morocco, India, United Arab Emirates and other Gulf Arab countries that sustain oil manufacturing.
The federal government of Russia assured that the country is stable and has a reliable support for their financial system. Yet, they also revealed that problems in liquidity might at times arise because of shallow market for government securities and an issue of distrust between local Russian banks themselves or between local banks and foreign companies.
The Arab countries have strong economic support since they primarily supply the needs for savings and credit around the globe. Economies of India and Morocco are irrelevant countries for credit crunch crisis, too. Their security against the aftermath of credit crunch was a result of disassociation with the economic issues surrounding the world and mainly in US.