Credit Crunch / Liquidity Crunch Discussion ?
Hi, I have been hearing the Key Words “Credit Crunch” and “Terrorsism” over the last few days more than i have heard anything else.
I will talk only about Credit Crunch here and not Terrorism as that is not what we talk about here. I have been brought up in a conservative indian family where credit or Loan is considered as a Curse and making expenditure or expanding business on credit is a complete NO NO. Possibly I argued with the elders in our family number of times against this topic.
I open this Post for a discussion and expect readers like you to post your comments on what do you think about
- Credit Crunch Vs Liquidity Crunch ?
- Is Credit crunch a Myth or a Reality ?
- Is Liquidity crunch a spill over of Confidense and Sentiments ?
Looking forward to your comments on the post.
December 11th, 2008 at 12:38 pm
Credit crunch i feel is all about sentiments. It was probably always there or never there. I say so cause in history there have been always ups and downs in business enviornments due to a lot of regional and global factors.
Its true demand has gone down and i feel its another phase where you clycle down on a uphill. Its the end of the growth phase for this cycle this one is going to be tough.
Challenges Include:
1. Better Cash management
2. Cautious spending
3. Efficieny improvement
4. Cost cutting
All this is possible by spending some time and money by looking inwards on what and how we have done things in immediate past. Be it running businesses, spending on non-esentials, etc. These elements are now not as essential as they were during the growth phase. So they need to be curtailed. Credit will be available always as its a seperate industry which cannot cease to exists. The costs however are going to be higher then past and disbursements are again going to be cautious.
As everthign is linked the crunch is not a permanant one but a one which affects each and all of us no matter how big or small we are. Lets get around this phase by been smart. After all Henry Ford said once :”Progress is not made by early risers or hard workers but by LAZY people trying to find easier ways to do the same.”
December 11th, 2008 at 12:42 pm
[...] the rest of this great post here [...]
December 11th, 2008 at 12:48 pm
The root cause of Credit Crunch is when you venture in something you cant visualize or dont understand the extent of the risk you are taking. Warren Buffet always says the main mantra for investing is to understand the industry or the product you are investing. The crisis arose due to faulty understanding of complex products like CDO’s (collateral backed debt obligations). This was a complete mishap of Derivatives which just reduced it to a mere joke.
Thus the first step to overcome the evil 3C’s (Credit Crunch Crisis) is to get back to basics and control your expenses and investments with an eye on its performance and returns. I guess the tool developed by Microsap Ltd for Sage 50 Accounts is a good example of how solutions can be developed for Credit crunch using softwares.
December 11th, 2008 at 12:49 pm
The root cause of Credit Crunch is when you venture in something you cant visualize or dont understand the extent of the risk you are taking. Warren Buffet always says the main mantra for investing is to understand the industry or the product you are investing. The crisis arose due to faulty understanding of complex products like CDO’s (collateral backed debt obligations). This was a complete mishap of Derivatives which just reduced it to a mere joke.
Thus the first step to overcome the evil 3C’s (Credit Crunch Crisis) is to get back to basics and control your expenses and investments with an eye on its performance and returns. I guess the tool developed by Microsap Ltd for Sage 50 Accounts is a good example of how solutions can be developed for Credit crunch using softwares.
December 11th, 2008 at 12:54 pm
I think the credit market runs on two wheels. One wheel is borrowing and the other is lending. Credit crunch is a situation in which the wheel of lending gets jammed leading to a sudden decline in lending, that is, credit. This situation will automatically jam the other wheel. So if there is a credit crunch, borrowers are not able to find lenders. And even if they find them, the credit is available at unusually high interest rates.
The worst credit crunch can happen if there is an increased perception of risk by lenders towards the borrowers. Lenders doubt the credit worthiness of the borrowers and thus when one of your wheels is in a rut, you can’t expect the other wheel to keep on moving. As a result, the flow of credit comes to a grinding halt.
December 12th, 2008 at 1:05 pm
Came across an interesting article -> that can be accessed from the following link
http://www.adviceguide.org.uk/index/whats_new_oct08_how_to_survive_the_credit_crunch.htm
Credit Crunch can be effectively handled by the following ways
1. Don’t bury your head in the sand
Ignoring your debt problems will only make them worse. Don’t ignore calls or letters from the people you owe money to (your creditors).
Contact them to explain why you’re having problems. The sooner you do this, the more options you’ll have for solving your financial problems.
2. Get advice
There are many organisations which offer free and independent money advice such as Citizens Advice, Shelter, National Debtline, and the Consumer Credit Counselling Service. Their debt advisers can assess your situation and work out the best course of action for you. For details of organisations which can help, go to the bottom of this page.
3. Pay your priority debts first
There are some debts you need to pay first before others, because the consequences of not paying them can be much more serious. For example, mortgage or rent debts are a priority as if you don’t pay these you could lose your home. Debt advisers can help you plan your budget and pay your priority debts first.
4. Pay what you can each month
Work out how much money you’ve got coming in and going out of your household on essential expenses like food and bills. Then work how much you’ve got left over to pay your creditors. If you can’t afford to pay back all the money you owe, work out how much you can afford and offer to pay this. A debt adviser can help you do this.
5. Maximise your income
Are you getting all the money you’re entitled to?
There may be benefits or tax credits you can get such as Pension Credit or Disability Living Allowance which you haven’t claimed. Working Tax Credit is an in-work benefit which is not just available to people with children. You might be able to get it if you work enough hours and are disabled or your income is low enough, even if you don’t have children. You may be able to get Council Tax Benefit or Housing Benefit to help you pay your council tax and rent. You don’t necessarily have to be out of work to get these benefits. You may be able to get help with your health costs such as prescription charges and dental costs. You may be able to claim help with education costs such as school meals and clothing.
You may be able to get a grant to help you pay for things like fitting home insulation and improving energy efficiency. This can help cut down the fuel bills.
Your gas and electricity supplier may be able to help you if you have fuel debts.
To find out if you can get help, visit the British Gas Energy Trust website at: (New window) http://www.britishgasenergytrust.org.uk or the EDF Energy Trust website at: (New window) http://www.edfenergytrust.org.uk.
There are also some charities which give grants to people to help pay their bills or buy essential items. You can find a list of these charities on the Turn 2 Us website at: (New window) http://www.turn2us.org.uk.
An adviser can help you maximise your income. For details of organisations which can help, go to the bottom of this page.
6. Make savings on your household expenses
Look carefully at your spending and see if there is anything you are able to cut down on. For example, you could shop around for a cheaper gas or electricity provider, or look at cheaper mortgage or insurance providers.
You can find more information about changing your gas and electricity suppliers from the website of the consumer watchdog, Consumer Focus at: (New window) http://www.consumerfocus.org.uk.
To find out more about how to save money on financial products such as mortgages and insurance, go to the website of financial watchdog the Financial Services Authority at: (New window) http://www.moneymadeclear.fsa.gov.uk.
7. Think twice about taking out a loan to pay off all your debts
You may end up paying back a lot more than you borrowed and at very high interest rates. You may not be able to afford the repayments and the loan may be secured against your home which you could then lose.
8. Facing possession proceedings? Don’t panic
Always attend the court hearings yourself. Court proceedings do not mean that you will automatically lose your home. The court process acts as a final check to make sure repossession is the last resort. Some courts have advice desks which can provide last minute assistance.
9. Take care with “mortgage rescue schemes”
Selling your home and renting it back might seem like a quick fix to your debt problems. But, many of these schemes offer very little security. You could end up paying very high rent or even being evicted. These schemes are also not regulated so you will not have access to the same protections as a mortgage holder.
10. Don’t abandon your property
If you are struggling with mortgage repayments you may be tempted to send the keys to your lender or abandon your property. Don’t do this without advice. You could still be responsible for the debt on the property and may be pursued for it years later.
December 15th, 2008 at 2:53 pm
This is an interesting line of discussion. I believe that the present global credit crunch is a culmination of more activities, most of which have occured around the same time-the trigger is failure of these sub-prime mortgages which swallowed many banks, financial institutins that have bought into this phantom product.
So long as the going is good-every body would like to take credit-but once the first set of loans go bust, then the disappearing act starts. At the present time, it is also coupled with lack of activity (is it coincidence that China went on a building spree eating up all steel produced globally and once Olympic is done and dusted, there is no more requirement for steel).
This scenario helps weed out the fly by night operators even though many established business models also fall along side.
Perhaps, the injuction of government funds into industry should help boost expenditure leading to business confidence
January 4th, 2009 at 8:09 pm
‘Recession’to me only means ‘The Recess is On’ before we get back to our grueling schedules. All forms of economic patterns that have been evolved have flaws and when those flaws get accumulated we face a recession, thus this is nothing much more than a correction phase, only sadly more often than not there is over correction and then stabilization. When we come to know facts like for every dollar earnt 32 dollars have been spent literally mortgaging the future if i may say so, to generate a pseudo demand which has in fact been fueling the global economies for quite some time now. This is what has crashed, hence the recession, but the correction means a complete overhaul of the entire system which would take its own time. Though with timely breathers we might not suffocate but time to me seems the only healer.
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