Assalam o allaikum
i want to share with you some thoughts abt the current financial crisis in world.( i want to make it simple so if any one interested in more details abt it can google it ).
the start,
i wont go in chronological order but rather how the events started.
firstly the commercial banks in usa have excess money. now to invest it somewhere they lend it to various types of debtors. even after they give loans to their credible debtors but problem with credible customers is that that they were charged at lower interest rates, they still had plenty of money with them, then they started to give loans to ppl who have no crediblity.the plus point of noncredible customers is that they can be charged higher interest rate and banks can earn more money then in case of credible customers. thus money is given also to non credible customers too.
banks were happy as they thought that since they had given loans and can earn more money, so they encouraged this process by giving extraordinary high bonuses to their executives, which further increased the pace of lending to noncredible customers.
since the loans that banks gave to their customers are to be returned in future. in case the bank needed more funds in present then since they cant ask their debtors to pay immediately. so what they did for their urgent capital requirements was to sell their loans to other banks.
now those banks which have purchased these loans, due to their own reasons sold it to other banks. this process continued till europen banks were also sold these loans.
but the point here was that could those noncredible debtors can repay their loans. and as suspected those debtors fled away or simply said we cant repay our debts.
now here started all this financial crisis. because the whole banking system which relied on those noncredible debtors started collapsing and now we can see whats going on as the total amount involved in this crisis is 14 trillion dollars. (1 trillion = 1 thousand billion )
some terminology
prime market = market of credible debtors
sub prime market = market of non credible debtors
derivatives = the asset based on loans to be paid in future
i have tried to make the argument simple, thats y i didnt used the above terminology. however u can relate it if u wanna be a csp.
any further input welcome
i want to share with you some thoughts abt the current financial crisis in world.( i want to make it simple so if any one interested in more details abt it can google it ).
the start,
i wont go in chronological order but rather how the events started.
firstly the commercial banks in usa have excess money. now to invest it somewhere they lend it to various types of debtors. even after they give loans to their credible debtors but problem with credible customers is that that they were charged at lower interest rates, they still had plenty of money with them, then they started to give loans to ppl who have no crediblity.the plus point of noncredible customers is that they can be charged higher interest rate and banks can earn more money then in case of credible customers. thus money is given also to non credible customers too.
banks were happy as they thought that since they had given loans and can earn more money, so they encouraged this process by giving extraordinary high bonuses to their executives, which further increased the pace of lending to noncredible customers.
since the loans that banks gave to their customers are to be returned in future. in case the bank needed more funds in present then since they cant ask their debtors to pay immediately. so what they did for their urgent capital requirements was to sell their loans to other banks.
now those banks which have purchased these loans, due to their own reasons sold it to other banks. this process continued till europen banks were also sold these loans.
but the point here was that could those noncredible debtors can repay their loans. and as suspected those debtors fled away or simply said we cant repay our debts.
now here started all this financial crisis. because the whole banking system which relied on those noncredible debtors started collapsing and now we can see whats going on as the total amount involved in this crisis is 14 trillion dollars. (1 trillion = 1 thousand billion )
some terminology
prime market = market of credible debtors
sub prime market = market of non credible debtors
derivatives = the asset based on loans to be paid in future
i have tried to make the argument simple, thats y i didnt used the above terminology. however u can relate it if u wanna be a csp.
any further input welcome
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