Description

Prior to crisis the financial market in U.S. and other major economies of the world had been growing at a rapid rate. Investors of all types that is both the small savings of household and large corporate savings have been able to mobilize their savings and earned a lot investing through capital market. Various type of sectoral funding agencies had been operating to facilitate those movements and help the borrowers in getting their requirement financed.
However, with the advent of subprime crisis that generally refers to situation that resulted from the borrowing defaults on subprime lenders. This type of lending was advanced mostly by the mortgage funding agencies. However as long as situation in both the market i.e. capital market and property market remained tacit the things were okay. With time the house prices initially rising and than falling these agencies started making huge losses on account of defaulting loans and decreasing prices and decreasing prices of mortgaged houses. This led to credit crunch for other sector thus the whole financial market came under this grip. Also recently some of the America’s top investment banks like Lehman Brothers, Merill Lynch, Wachovia also started falling as the assets valuation began to decrease and liabilities rose for these institutions.
This economic imbalance first hit the financial sector, then the credit sector, then the whole of capital sector.