Posted by Yi-Xin Jin (Lily)
Many businesses are also suffering the economic consequences caused by the subprime mortgage crisis. They have been struggling over the last months in getting finance because many lenders did not have enough to lend to new businesses and commercial borrowers. Some lenders said they may have to stop or limit lending to them and concentrate on existing borrowers. They do not want to risk lending to new investors because they may have a greater chance of defaulting. Lenders also wanted to establish long term relationships with their customers. Those who wanted to start new businesses will find it difficult. In addition, the unemployment rates have been increasing due to companies going bankrupt.
According to the article Block pipes from the Economist print, the collapse of one the sub-prime lenders Lehman Brothers, followed by the long series of rescue in Europe and America, seems to have brought the money markets close to breakdown. Companies were not able to provide credit to retail and corporate clients because money markets were not ‘‘behaving normally.’’ Rates on loans are set with reference to money markets. The higher rates for banks mean higher rates for everyone. If a market was blocked for a week or more companies may find it hard to finance at any price causing more bankruptcies and job losses, and making investors more risk adverse. Since many companies are highly dependent on these money markets, financial crisis will not recover if money market situations are not cleared, thus tougher regulations should be implemented.
According to the article Block pipes from the Economist print, the collapse of one the sub-prime lenders Lehman Brothers, followed by the long series of rescue in Europe and America, seems to have brought the money markets close to breakdown. Companies were not able to provide credit to retail and corporate clients because money markets were not ‘‘behaving normally.’’ Rates on loans are set with reference to money markets. The higher rates for banks mean higher rates for everyone. If a market was blocked for a week or more companies may find it hard to finance at any price causing more bankruptcies and job losses, and making investors more risk adverse. Since many companies are highly dependent on these money markets, financial crisis will not recover if money market situations are not cleared, thus tougher regulations should be implemented.
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