How did the stock market crash provoke a banking crisis?
kdee asked:
How did the stock market crash provoke a banking crisis?
And how did the banking crisis lead to business failures?
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How did the stock market crash provoke a banking crisis?
And how did the banking crisis lead to business failures?
August 24th, 2009 at 11:04 am
it is actually the reverse, US banks had lots of money( cause’ world trades in dollars) wanted to make more of it…US banks did not have enough customers to sell products to ( loans,bonds are products of bank as steak is that of a butcher). In order to find more customers they decided to loan to guys they should not actually loan ( sub prime - guys who can not repay loan so sub the prime index of good consumer). Now much of these loans where housing loans - so this lead to more consumers for real estate so more and more housing projects, eventually there where so many houses built that there where not enough buyers so cost of one unit of house came down to such a level that our sub - prime guy decided that his house was not good enough to pay the interests for, the banks took the house but alas it was not worth the money lent. The banks went one step ahead and sold these loan contracts as bonds to other investment houses too, so when this whole think came crashing it hit everybody. The stoke market crash is just the effect of all this greediness..