13 December 2007

World Banks Donate $100bn to Bail Out U.S. Sub-Prime Markets

The answer is more credit!!!

The worlds banks are joining together to make more than $100 billion *"available" this month.

The Federal Reserve is injecting $40 billion; the Bank of England $46.4 billion, the European Central Bank $20 billion, the Swiss National Bank $4 billion and the Bank of Canada is providing $3 billion. Sumitomo Mitsui, one of Japan's 3 largest banks was asked to invest $5 billion in a fund to bail out banks with sub-prime losses, but has not committed to it yet.

*By "making available", they mean dump money into our markets to try to bail out the economy as it is sliding due to the collapse of our sub-prime market.

So what is the credit crunch all about?

From the National Post's "Financial Post", Drew Hasselback stated:

Banks are hoarding cash against possible losses on investments related to the U.S. mortgage market, in which even borrowers with poor credit ratings were able to get loans. The problems in the wonky U.S. mortgage market are now so widespread that commercial banks are reluctant to lend to each other because the true extent of their mortgage losses remains unknown.

Too many funds are tied up in complicated, mortgage-related investments that can't be instantly unwound. This puts a strain on investors who want to pull their money out of the markets immediately. It also puts a strain on banks who want to loan money to customers. Because they're so busy trying to pay out the investors racing out of the market, the banks have less cash available for people who need loans.

The measures announced on Wednesday are supposed to make it easier for banks to access more cash. This extra "liquidity" would make it easier for banks to pay out the investors who want out of the market, and to provide loans to those who want to borrow.

It must be the fault of immigrants!

Did I mention that Congress just passed a defense policy bill that will authorize $696 billion in military programs, including $189 billion for the wars in Iraq and Afghanistan. Things that make you go, "hmmmmmmmmmm".

Thank you to my lovely wife for giving me the heads-up on this one. It was difficult locating information on the story ...especially within the U.S. press.

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