MGEC71H3 Lecture Notes - Lecture 5: Credit Crunch, Prime Rate, Commercial Paper
9 Mar 2019
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How uncertainty over risky u. s. housing loans sparked a cash shortfall that roiled global markets. All week, you"ve been hearing about subprime this, and asset-backed that, and commercial paper whatever. Here"s the big picture: the stock market has been going strong for years. This pullback is a natural and expected result some say it was needed. It"s like the hangover the morning after a big party. This meltdown wasn"t about technology stocks or oil prices or real estate, or anything that you could touch with your hands. In fact, it started in an arcane, little-understood part of the financial system that involves packaging up loans and selling them to other investors. This is the engine that keeps the capital markets chugging along. Liquidity, a fancy word for how easily assets can be converted into cash, is the grease that keeps it working. And that sent stock markets into a tizzy.
