Monday, September 3, 2007

Possible Spillover of Sub-prime Mortgage Crisis

1) Subprime Crisis > Banks tighten lending > Credit Crunch > Investment funds pull out from markets > Currencies fall > Net Import Nations face crisis of higher priced goods (import inflation)

2) Subprime Crisis > Mortgage borrowers fail to pay up > CDOs worthless > Balance sheets of financial institutions get impacted (depending on impact, some may close, others face a huge profit write off) > Markets may get shocked > Investors seek liquidity > Pull of from markets > Markets fall, herd behaviour occurs > Market falls further > Investors lose confidence > Govts step in > Stability may occur slow or fast depending on the speed and actions taken by govts.

3) Subprime Crisis > Mortgage borrowers fail to pay up > Foreclosure of homes > Supply of home sales in market outstrip demand > Property prices fall > USA home owners feel less rich > Consumption decreases > USA demand for global goods decreases > Negative impact on export-oriented countries like China, Taiwan and Singapore > Economic slowdown possible on a global scale.

4) Subprime Crisis > Mortgage borrowers fail to pay up > Foreclosure of homes > Supply of home sales in market outstrip demand > Property prices fall > USA home owners feel less rich > Consumption decreases > FED lowers interest rate, get banks to lend out more > Banks change lending patterns from property to other forms > Consumption increases > Solve economic slowdown.

5) Subprime Crisis > Mortgage borrowers fail to pay up > Foreclosure of homes > Supply of home sales in market outstrip demand > Property prices fall > USA home owners feel less rich > Consumption decreases > FED lowers interest rate, get banks to lend out more > Banks change lending patterns from property to other forms > Consumption increases > Subprime Crisis gets worse, impacts entire economy > Possible stagflation.

6) Subprime Crisis > Banks tighten lending > Credit Crunch > Central Banks reduce interest rates > Banks pay extreme caution in lending > Not many borrowers > Interest rates remain low > Subprime Crisis gets bigger than expected > Economic fallout > Recession on a global scale > Possible depression like 10-year long Japan.


Many more other possibilities, as the future is uncertain.