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The credit crunch is the term generally used to describe the crisis in world banking which emerged in August 2007. Quite simply, banks both here and in the USA made large amounts of injudicious loans to high risk borrowers. When these high risk or sub-prime borrowers defaulted the banks were forced to cut back on new lending and to attach very strict conditions to such loans. Indeed a number of banks lost so much money on these loans that they became virtually insolvent and were only saved from bankruptcy by massive government bailouts.
This led to great difficulty in obtaining mortgage finance and there was a collapse in the housing market on both sides of the Atlantic. A major fall in aggregate demand and a recession inevitably followed this financial crisis.
queen babito answered the question on July 9, 2018 at 06:50
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