What is the credit crunch?

The Credit Crunch arose because Lenders are always conscious of their market share, whilst at the same time using the same source of finance as the competition, namely the money markets. They all ask "what is everyone else doing?" Most traditional lenders finance their lender through their depositors, or "balance sheet lending", as it is called. Some Merchant Banks used to buy sub-prime Lenders as a manufacturing source of Collateralised Debt Obligations (CDOs), which they would then sell on, in some cases to Sovereign Wealth Funds, like China, who have large sums of foreign currency to invest. The problems arose when some of the sub-prime debt was packaged up with better quality debt and the whole was given a good credit rating, encouraging the buyers to purchase them. As the world of finance is inter-related, banks knew that they held questionable quality debt themselves and were therefore suspicious of lending to other Institutions, whom they suspected of also holding doubtful debt. The problem is therefore of the Banks being unwilling to lend to each other, needing the intervention of Central Banks to inject capital into the system.

Basically it means that the prices of many things are going up including food and fuel and anything that has to be transported or grown and as a result there will be less money spent by the public and so the country will be worse off for it. Also many companies are putting off annual pay rises which will also make people poorer. If you are sensible and budget yourself then it shouldn't affect you too badly and if you have money to save in a high interest account then you could even benefit from it.

a nice way of saying that the rich and famous now have bad credit scores, and now they have to use payday loans and pay 3,000.00 for a 1,000.00 tv at rent-a-center, basically more have gone from the penthouse to the outhouse