From the Desk of Chief EditorHuman Behaviour, Financial Bubble and Lessons of History: A Perspective of Subprime Mortgage Crisis in USA
“It is the historian who has decided for his own reasons that Caesar’s crossing of that petty stream,the Rubicon, is a fact of history, whereas the crossing of the Rubicon by millions of other people before or since interests nobody at all”.[E. H. Carr, What is History?, Penguin Books, Harmondsworth, U.K.,1975, p.11.]
The so-called subprime crisis in the United States of America that became areality with the burst of the home mortgage bubble has had its different sub-phases andfinancial sector of the country is in real trouble. Though banks now find it a bit easy withliberal central bank support, inter-bank lending rates are very high. The asset-basedcommercial paper market experienced continuous decline in the last quarter of 2007. The bank crisis has been averted as USD 27 billion capital has flowed into the banking sector from sovereign wealth funds. The recipients of this fund include Merrill Lynch,Citigroup, Morgan Stanley, Goldman Sachs and Credit Suisse. But banks’ residential – mortgage problems are not over yet. Banks have already written off whopping sums over subprime mortgages, but they remain vulnerable to more hits. One estimate put theworldwide remaining exposure to subprime loans at USD 380 billion and this isexcluding off-balance-sheet vehicles
. The fear of recession in the US is now in people’s mind and one effect of this isthe worries about the deterioration in the climate of credit. Commercial property, car
Wall Street Journal, 24 December, 2007. "It's now conventional wisdom that a housing bubble has burst.In fact, there were two bubbles, a housing bubble and a financing
bubble. Each fueled the other, but they didn'tfollow the same course."