What is the credit crunch?

What is the credit crunch and recession??? help?

• can someone explain to me what the credit crunch is and what the recession is . i googled it but i still dont under understand it. please explain it simple as possible. i asked my friends and they were in shock when i tolded them that i didnt know. they told me something abt banks or something.

• Answer:

  Alright newbie...here goes. Banks started loaning out money to people either in amounts they couldn't afford to pay back or to people who they knew were higher risk. Since the banks were giving out this money a lot of people trusted them and said hey, my bank wouldn't give it to me if I couldn't pay it back so I'll take it. Now, banks need to have enough money in reserve to cover the amount of money they've lent, at least 10% of it needs to be liquid capital. Which means that if they give out $100 dollars to people they need to have $10 actually in their hand to give out, not invested or in other ways locked up. Now a lot of things started happening all at once...companies were scamming people out of money and getting caught, banks weren't being paid back the money they'd lent out and went bankrupt, people lost their jobs and couldn't pay back the money they'd used on their credit cards and homes, cars, vacations etc. This all snowballed until finally the stock market crashed...remember the Great Depression?? Well our stock market actually lost more points this year in one day than it did during the Depression. What this means (here comes the recession part) is that people who had investments lost A LOT of money, they were no longer able to retire, go to school, etc. Interest rates plummeted, companies collapsed, jobs were lost, people stopped hiring. The good thing is if you live in Canada, we aren't as bad off and if you have any money to invest at all now is the time to do it. You'll be able to buy more stock with less money and as the economy comes back you'll see a big raise of your capital. (your money not Ottawa hahaha) If you live in the states, you still have some work to do but I actually have a lot of faith in your president!! Hope I've helped.