A Specific Crisis at the Epicentre of an Earthquake – the consequences of the subprime crisis

The subprime crisis is not just the epicentrer of an earthquake that occurred in the U.S., it is a crisis from which the aftershock, like a tsunami, quickly reached the shores of the European markets, and particularly the monetary fund markets, which had been considered to be risk free and stable. More than just the single-handed cause of this crisis, we can think of subprimes as only the tip of a gigantic iceberg. The impact may be tremendous on a global level, including financial difficulties for certain credit institutions (such as Northern Rock, IKB and Sachsen), as well as doubt cast on an entire weakened sector, a lack of confidence in the interbank loan market, a rise in the cost of credit, and increased credit spreads even with a risk of credit crunch. Paradoxically, all of these consequences have occurred despite an extremely liquid environment, with companies that have never been so financially healthy.

One big question still remains about these products. Who owns what? It is this lack of clarity that is causing problems. Did we really know what we were investing in? We can’t be too sure.

Repercussions for treasurers

Shortage and higher cost of credit

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