Six sentence summary of crisis from summer up to now
QLC’ers like summaries. They’re quick, easy-to-read, and informative. Thus, here is a six-sentence summary of the financial crisis –
Since the summer, when many parts of the credit market seized up, banks and Wall Street firms have been stuck holding hundreds of billions of dollars of loans, bonds, and complex securities backed by mortgages and other assets. The banks created the debt with the intention of selling it to investors for handsome fees.
When many investors backed away from riskier debt last year, banks were forced to keep the debt, which has strained their ability to trade or to make new loans. Liquidity in the market dried up as a result.
To encourage firms to trade more freely with each other, the Fed has taken a series of unprecedented steps to boost liquidity in the markets, including expanding its direct lending to securities dealers. So far, the Fed’s measures have helped alleviate some of the strains in the credit markets.
Source: WSJ, April 11 2008