Subprime Crisis

Even before my previous entry, the credit crunch and the pumping of funds into the financial institutions by central banks were already in the midst.

Now it seems, that a variation of Possibility 6 happened.

Banks pay extreme caution in lending, and they are not even lending to their counterparts! As reported in Singapore's The Business Times on 15 September 2007, "Britain urges 'international action' after banking bailout", the Bank of England had to provide emergency funds to a major British mortgage lender called Northern Rock after other banks became wary of lending to it, squeezing the mortgage lender's financing.

As long as holders of CDOs related to the subprime crisis have no idea how material the financial impact will be, uncertainty will be formed in the market. As such, banks will take caution towards lending even if they are lending to others in their industry.

Let's all hope the subprime crisis will not be material to cause a banking meltdown.