Blog: The banking crisis of 2008 and the SAMVA USA chart

March 17, 2008

Monday, March 17, 2008

The banking crisis of 2008 and the SAMVA USA chart

A moment of truth has descended on the US banking system. After many years of marketing and selling highly risky debt, the banks are feeling the heat from a lack of funds. Over the past year, the financial market has been coming to terms with this situation. There have been recurring bouts of anxiety with share price declines. All the while uncertainty about the severity of the situation has been growing. Initially, the concerns were about the bank profitability, but more recently, with a dimming outlook for the economy, the concerns have shifted to their solvency. At its root,

the situation is traced to loan losses in the housing market linked to falling house prices. The uncertainty of the extent of the problems has begun to hamper the pricing of risk- the banks won't lend at any price. The US central bank, the Fed, has poured money into the financial system to little avail as banks remain reluctant to lend out the money. People are also reluctant to borrow to buy homes in a declining real estate market. The contraction of credit is a clear trend since mid 2007 which is likely to have ramifications for economic growth and employment going forward.

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