Is There A Crisis In The Banking System? | Loan and Credit
Since the beginning of the US subprime crisis, French and international banks have been singled out and considered by many observers as the real culprits of the current financial crisis.
The subprime crisis at the root of all the evils
Big innovation of US banks, mortgages distributed to a population “at risk” has long been a lucrative business to the point that US financiers have converted these debts into financial products. The credit market has worked all the more well as the rates charged by the US Federal Bank were particularly low.
This so-called “securitization” operation then made it possible to offer partners a share of these debts, which most international banks were quick to buy.
The conjunction of two factors ended up abruptly reversing the trend. Interest rates first rose gradually from 1 to 5 while at the same time, the prices of the real estate investment market fell by around 25%. The consequences were going to be dramatic for the borrowers.
Having bought variable-rate loans, the latter then found themselves unable to repay their installments. The foreclosures practiced by the credit agencies have resulted in the expulsion of the unfortunate owners for whom the sale of housing has proved insufficient to settle the debts.
Internationalization of the crisis
By “securitizing” their claims, US banks have exported this risk. Financial markets with complex instruments have been organized on the stock market with the creation of new UCITS (mutual funds and SICAV) to resell these products. After offering particularly high returns, these hedge funds saw their assets melt like snow in the sun, dragging down all investors – and especially international banks – in their wake.
When Banks Play Sorcerer Apprentices
This indiscriminate risk-taking by banks attracted by the lure of big gains is considered by many economists to be irresponsible. In this sense, the economic crisis that stems from this situation and its consequences on everyday life makes them the real culprits.